University of New Hampshire Law Review
Volume 7
Number 3 Pierce Law Review
Article 3
June 2009
State Constitutional Limits on New Hampshire's
Taxing Power: Historical Development and
Modern State
Marcus Hurn
Franklin Pierce Law Center, Concord, NH
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Repository Citation
Marcus Hurn, State Constitutional Limits on New Hampshire's Taxing Power: Historical Development and Modern State, 7 Pierce L. Rev.
251 (2009), available at http://scholars.unh.edu/unh_lr/vol7/iss3/3
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State Constitutional Limits on New Hampshire‘s Taxing
Power: Historical Development and Modern State
MARCUS HURN*
TABLE OF CONTENTS
I. INTRODUCTION................................................................................... 252
II. HISTORICAL DEVELOPMENT: FOUR PERIODS .................................... 254
A. 1784–1880: The Age of Innocence ............................................... 255
B. 1880–1903: New Rigor, Powers and Limits Refined .................... 256
C. 1903–1940: Constitutional Change, the Struggle to
Give it Meaning ............................................................................ 266
D. 1940–Present: Proliferation of Categories .................................. 275
1. Latent Issues About the Power to Classify ................................ 275
2. The Tobacco Tax, Narrower Classification Permitted .............. 277
3. Developments by Type of Tax .................................................... 287
a. Other Sales and Commodity Taxes ........................................ 287
b. Taxes on Incomes or Expenses ............................................... 291
c. Franchises .............................................................................. 298
d. Property Taxes ....................................................................... 298
4. Other Developments .................................................................. 300
a. Tax Relief ............................................................................... 300
b. Exemptions for Economic Development ................................ 303
c. Double Taxation ..................................................................... 304
d. Retrospectivity ........................................................................ 307
5. Summary of Changes in the Modern Era .................................. 309
III. A MODERN APPROACH: SORTING OUT THE CONCEPTS..................... 310
A. Public Purpose, Equality, Reason ................................................ 310
B. Proportionality ............................................................................. 313
C. Selection and Classification ......................................................... 316
D. Exemptions.................................................................................... 319
E. Justice ........................................................................................... 322
F. Standards of Review ..................................................................... 323
G. Modern Rules Summarized ........................................................... 324
IV. CONCLUSION ...................................................................................... 324
251
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I. INTRODUCTION
The New Hampshire Constitution is, in most of its fundamental parts,
very old.1 It is long (nearly 200 articles) and wordy, even by the standards
of the eighteenth century. It expresses essential principles in more than
one place, in more than one way, and in language that to modern eyes is
more suited to political philosophy than to positive law. Most of it was
copied from the original Massachusetts Constitution,2 itself based on a
draft by John Adams.3 However, there is no other state in the union with a
structure of taxing powers and limits comparable to New Hampshire‘s.
Part I of the New Hampshire Constitution is the Bill of Rights. Its first
article declares ―[a]ll men . . . equally free and independent,‖ and ―all government . . . instituted for the general good.‖4 Article 10 reiterates that
government is ―instituted for the common benefit, protection, and security,
of the whole community, and not for the private interest or emolument of
any one man, family, or class of men.‖5 Article 12 entitles ―[e]very member of the community,‖ to protection ―in the enjoyment of his life, liberty,
and property,‖ subject to the obligation ―to contribute his share in the expense of such protection . . . .‖6 These provisions, combined with part II,
article 5‘s requirement that legislation be ―wholesome and reasonable,‖
and ―for the benefit and welfare of this state,‖7 comprehend concepts later
expressed in the federal Constitution as Substantive Due Process and Equal
Protection. Retrospective laws are prohibited.8
The New Hampshire founders had distinct views on the proper ways of
funding government. Part II, article 5 requires that ―assessments, rates,
and taxes,‖ be ―proportional and reasonable . . . .‖9 They gave this principle particular content by rejecting the clause of their Massachusetts mod* Professor of Law, Franklin Pierce Law Center. This article grew out of orientation presentations
requested by the Ways and Means Committee of the New Hampshire House of Representatives in 2008
and 2009.
1. The revolution was waged by a provisional government with ―undefined and boundless authority, hastily assumed and arbitrarily exercised, for the transient purpose of the war . . . .‖ Gould v. Raymond, 59 N.H. 260, 272 (1879). The permanent constitution, refined and ratified by the people through
successive rounds of town meetings, became effective in 1784. State v. Saunders, 66 N.H. 39, 72
(1889). A comprehensive set of amendments was ratified in 1792. Id. While the 1792 revision was
quite extensive, it was not strictly a new constitution.
2. State v. U.S. & Can. Express Co. (State v. Express), 60 N.H. 219, 248–49 (1880).
3. 4 CHARLES FRANCIS ADAMS, THE WORKS OF JOHN ADAMS, SECOND PRESIDENT OF THE UNITED
STATES WITH A LIFE OF THE AUTHOR 215–16 (1851).
4. N.H. CONST. pt. I, art. 1 (1784).
5. N.H. CONST. pt. I, art. 10.
6. N.H. CONST. pt. I, art. 12.
7. N.H. CONST. pt. II, art. 5.
8. N.H. CONST. pt. I, art. 23.
9. N.H. CONST. pt. II, art. 5.
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el authorizing excise taxes.10 Taxation was permitted only on polls and
―estates‖ (meaning property owned, possessed, or enjoyed).11 This was
reiterated in the original language of part II, article 6 governing modes and
frequency of assessment.12 They also omitted language authorizing the
colonial practice of taxing ―faculty,‖ the capacity to earn income.13 For
over a century, the property tax for each unit of government was just that—
the property tax—a single, broad levy at one uniform rate on specified real
and personal property.
Despite one significant constitutional amendment14 and considerable
evolution in judicial interpretation, it is still the case that true taxes must be
on polls or property. New Hampshire remains unique among the states in
denying the legislature the power to levy excise taxes as such.15 Consequently, while occasionally used, persuasive authority from other states
and general treatises are often irrelevant, misleading, or double-edged.16
Modern ―taxes‖ not levied ad valorem on some class of property must be
justified under some other power (as, for example, fees to recover costs,
10. State v. U.S. & Can. Express Co. (State v. Express), 60 N.H. 219, 239 (1880). The excise article
was also missing from Adams‘s original draft. 4 ADAMS, supra note 3, at 233 n.3. Hostility to excises
was part of an established political tradition in England as well as the Colonies. Viewed as oppressive
and a source of systematic corruption, their abolition was repeatedly demanded under the English
Commonwealth. See, e.g., J. Rushworth, Heads of the Proposals Offered by the Army, in THE
CONSTITUTIONAL DOCUMENTS OF THE PURITAN REVOLUTION 1625–1660 324 (Samuel Rawson Gardiner ed., 2d ed. 1899). Dr. Johnson‘s famous dictionary defines excise as ―a hateful tax levied upon
commodities . . . .‖ SAMUEL JOHNSON, A DICTIONARY OF THE ENGLISH LANGUAGE (unpaginated)
(facsimile reprint 1990) (London, 1755). In its address inviting Quebec to join the colonial resistance,
the Continental Congress referred to the excise as ―the horror of all free states.‖ THE FOUNDERS‘
CONSTITUTION ch. 14, doc. 12 (Philip B. Kurkland & Ralph Lerner eds., 1987), available at
http://press–pubs.uchicago.edu/founders/documents/v1ch14s12.html.
11. N.H. CONST. pt. II, art. 6; Conner v. State, 82 N.H. 126, 127–28, 130 A. 357, 358 (1925).
12. ―And, while the public charges of government or any part thereof shall be assessed on polls and
estates in the manner that has heretofore been practiced, in order that such assessments may be made
with equality there shall be a valuation of the estates within the state taken anew once in every five
years, at least, and as much oftener as the general court shall order.‖ N.H. CONST. pt. II, art. 6.
13. MAURICE H. ROBINSON, A HISTORY OF TAXATION IN NEW HAMPSHIRE 86 (1903); Opinion of
the Justices, 76 N.H. 588, 593–94, 79 A. 31, 33 (1911). The implication of this omission was not at
first realized. In 1784 the first assessment statute after adoption of the constitution retained ―faculty,‖
but it was omitted in 1789 and did not reappear. Opinion of the Justices, 76 N.H. at 595, 79 A. at 33.
14. N.H. CONST. pt. II, art. 6 (amended 1903) (permitting taxation of ―other classes of property‖).
15. The constitutional amendment of 1903 authorizing taxes on ―other classes of property‖ permits
what I call quasi-excises:
In the sense that they are dynamic rather than static, that their incidence is dependent upon the
happening of an event rather than upon the mere existence of property, they may properly enough
be classed as excises. In the features of being laid upon property and ad valorem, they are like estate taxes.
Opinion of the Justices, 84 N.H. 559, 576, 149 A. 321, 330 (1930) (emphasis added); see infra Part
II.D.
16. See, e.g., State v. U.S. & Can. Express Co. (State v. Express), 60 N.H. 219, 249–50 (1880)
(referencing Chief Justice Doe‘s use of Massachusetts cases upholding taxes under the excise clause to
demonstrate the unconstitutionality of similar taxes in New Hampshire).
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special benefit assessments, or penalties). These non-tax revenues are subject to their own constitutional constraints and have a complex history.
Some description of their origin and nature is required to understand taxation, but full analysis of their current status is deferred to a forthcoming
article. The modern tax system would be unrecognizable (and probably
disturbing) to the founders and the courts of the nineteenth century. Political and economic pressures have led to repeated and increasingly complex
efforts to mimic excise taxes by defining special classes of property, layering exemptions and credits, and wielding other revenue powers. Along the
way several narrow constitutional amendments have permitted or constrained particular taxes or policies.17
II. HISTORICAL DEVELOPMENT: FOUR PERIODS
The New Hampshire Supreme Court regularly cites tax opinions as far
back as 1829, with little indication of any legal discontinuities. However,
the constitutional law of New Hampshire taxation shows four distinct periods of increasing complexity. Only a few general principles survive from
the earlier cases, and many specific holdings have been overturned, often
indirectly or tacitly.18 Some early general statements have been given new,
very different meanings. The citations to old cases are a tribute to the
court‘s determination to maintain principled consistency with as much of
the ancient law as possible, but many once-critical distinctions have been
swept away. The modern court is usually much more deferential to legislative judgment than its predecessors. Because decisions from before 1940
are as likely to mislead as to enlighten the reader, some sense of the spirit
of each era and the turning points will reduce the risk of confusion. Moreover, the modern law is encrusted with bland generalities and string citations19 that obscure issues, some of them unresolved. The peculiarities of
17. N.H. CONST. pt. II, art. 83 (amended 1877) (prohibiting use of tax money for religious schools);
N.H. CONST. pt. II, art. 5 (amended 1942) (permitting special assessments, rates and taxes on growing
wood and timber); N.H. CONST. pt. II, art. 5-b (amended 1968) (real estate may be valued based on
current use); N.H. CONST. pt. II, art. 6-a (amended 1938) (revenue from automobile registrations,
licenses, gasoline taxes, etc. dedicated solely to highway purposes).
18. Changes have often been indirect or tacit. As a result, the signals in citation services are not
reliable—independent examination of later citations is recommended.
19. For example, in 1997, after a long, citation-studded survey of general principles derived from
the main sources and limits of taxing authority, the court concluded: ―Together, these three constitutional provisions require that taxation be just, uniform, equal, and proportional; in addition, our constitution demands that classifications be made between types of property, not taxpayers.‖ Smith v. N.H.
Dep‘t of Revenue Admin., 141 N.H. 681, 686, 692 A.2d 486, 491 (1997). In the author‘s experience,
this offers little practical guidance to legislative committees.
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current law make little sense without an understanding of the logic and the
concrete cases through which they evolved.
A. 1784–1880: The Age of Innocence
From the adoption of the constitution to 1902, there was one principal
property tax supporting each level of government. The legislature added
and varied items to be included, set uniform statutory valuations for some
of them, and experimented with exemptions to encourage various industries. From the beginning there was also an ―excise‖ on alcoholic beverages and assorted other levies indifferently called taxes or fees that, while
potentially problematic, were familiar from the colonial period and taken
for granted.20
Until 1829, there was little opportunity for the courts to test legislation
against the tax philosophy embedded in the constitution.21 In that year, the
Supreme Court of Judicature took the occasion of an advisory opinion
about a proposed local road tax to write a comprehensive dissertation on
the constitutional framework.22 The opinion has been regularly cited down
to modern times.23 At least four enduring propositions were developed.
First, the ―supreme legislative power . . . vested in the senate and house of
representatives‖24 to ―establish, all manner of wholesome and reasonable . .
. laws . . . for the benefit and welfare of this state,‖25 is not plenary in matters of taxation, but is limited to ―proportional and reasonable‖ levies on
the specific subjects mentioned in part II, articles 5 and 6—at that time,
only ―polls and estates.‖26 Second, ―proportional‖ means ―the same tax
shall be laid, upon the same amount of property, in every part of the [jurisdiction levying it].‖27 Third, the additional term ―reasonable‖ adds something beyond mathematical proportionality, permitting variation to make
taxes ―just . . . so that each individual‘s just share, and no more, shall fall
upon him.‖28 Fourth, ―a very considerable latitude of discretion must be
20. See generally ROBINSON, supra note 13.
21. ―The legislature exercised judicial power after the adoption of the constitution, as they did
before, in reversing judgments and granting new trials: and that illegal procedure was not discontinued
until it had flourished, under constitutional prohibition, for the space of thirty-four years.‖ State v.
Express, 60 N.H. 219, 248 (1880) (citing Merrill v. Sherburne, 1 N.H. 199 (1818)).
22. Opinion of the Court, 4 N.H. 565 (1829).
23. See, e.g., Claremont Sch. Dist. v. Governor (Claremont II), 142 N.H. 462, 703 A.2d 1353
(1997); Smith, 141 N.H. at 681, 692 A.2d at 486.
24. N.H. CONST. pt. II, art. 2.
25. N.H. CONST. pt. II, art. 5.
26. Opinion of the Court, 4 N.H. at 566.
27. Id.
28. Id. at 569. Other than the exemption of infants and idiots from the poll tax, the justices gave no
indication how a ―just share‖ differs from mathematical proportionality. Id. at 570.
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left to the legislature . . . as to the selection of proper subjects of taxation
and the proportion of the tax that shall be laid on each subject . . . .‖29
The rise of business corporations, particularly railroads, telegraph
companies, and various types of banks or insurance companies, strained
the simple system. Was the property of a corporation to be taxed to the
shareholders, to the corporation, to both, or somehow apportioned?30 What
if the corporation itself owned shares?31 The full value of the tangible
property of network industries and the intangible property of moneyed
corporations could not reasonably be assessed and taxed by particular
towns. The statutes of the mid-nineteenth century are strewn with experiments raising revenue from these industries by statewide levies in addition
to, or in lieu of, localized taxes on tangible property.32 The courts became
increasingly concerned about double taxation and the actual incidence of
various taxes.
In surveying this period (as he joined in bringing it to a close), Chief
Justice Doe wrote:
Inequality of operation, gradually introduced by new subjects of
taxation, and by increased differences in the values and varieties of
old ones, has been met by legislative efforts to rectify the wrong.
Such changes have taken place that methods of dividing the public
expense, equitable enough for practical purposes in the last century, would now be good cause of complaint. A great mass of
questions of constitutional administration, to be raised by the
progress of society, and the enlarged and complicated industries
and interests of future generations, were left for those generations
to solve.33
B. 1880–1903: New Rigor, Powers and Limits Refined
In 1880, the New Hampshire Supreme Court began to strictly define
proportionality and to strike down or advise against34 a great deal of legis29. Id. at 570.
30. Smith v. Burley, 9 N.H. 423 (1838); see also Cheshire County Tel. Co. v. State, 63 N.H. 167
(1884); Robinson v. Dover, 59 N.H. 521 (1880).
31. Nashua Sav. Bank v. City of Nashua, 46 N.H. 389 (1866).
32. This history is somewhat surveyed in Wyatt v. State Board of Equalization, 74 N.H. 552, 70 A.
387 (1908), where it became necessary to determine whether the savings bank deposit tax was a property tax, in order to determine the proper formula for assessing the railroad tax.
33. State v. U.S. & Can. Express Co. (State v. Express), 60 N.H. 219, 247 (1880).
34. As economic and political demands for legislation increasingly ran afoul of constitutional limits,
the House and Senate began to invoke part II, article 74 of the New Hampshire Constitution to secure
advisory opinions on proposed legislation. Their precedential value is somewhat qualified:
The true standing to be ascribed to them seems to be that while they are persuasive they are
not controlling; and their persuasive value may be greater or less, as the circumstances under
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lation. In that year, it declared three tax statutes unconstitutional,35 and
two years later another.36 It also began to develop the criteria for tax exemptions and the constitutional bases and limits for revenues that could be
raised without qualifying as taxes.
The decisive step was taken in State v. U.S. & Canada Express Co.,
when the court struck down a ―license‖ fee of 2% on the gross revenues of
express companies.37 Although still cited and regarded as fundamental, by
normal standards State v. Express should have had little precedential value.
There was no opinion of the court. Two Justices did not sit, two wrote
individual opinions, and the others concurred only in the result without
opinion. The opinions of Justice Stanley and Chief Justice Doe display
quite different approaches to the relevant constitutional provisions. Subsequent decisions long reflected Stanley‘s attitude toward proportionality.
Doe‘s lasting contribution was to ground many exemptions and substantial
non-tax revenues in the ―protective power,‖ New Hampshire‘s version of
the police power.38
The attorney general argued that modern conditions required the court
to recognize it had been wrong in 1829—that the legislative power to tax
was not intended to be limited to proportional levies on polls and estates,
but extended to ―privilege‖ taxes on business. This was demonstrated by a
century of business licensing and business taxes assessed at fixed sums or
according to income.39 The state maintained there was no difference between a license fee and a tax.40
Both Justice Stanley and Chief Justice Doe believed that there was a
difference, and that despite its terminology this statute‘s object was ―to
raise revenue by taxation.‖41
That made the case easy for Justice Stanley. He adhered to the prevailing view that the references to polls and estates in part II, articles 5 and 6
which they were rendered show finality of judgment or the reverse in the minds of their authors.
Opinion of the Justices, 84 N.H. 559, 583, 149 A. 321, 333 (1930). They comprise, by far, the bulk of
the court‘s analysis in this field and are rarely renounced.
35. Boston, Concord & Montreal R.R. v. State, 60 N.H. 87 (1880) (railroad tax disproportional to
extent it was a state tax); Berlin Mills Co. v. Wentworth‘s Location, 60 N.H. 156 (1880) (taxation of
property in unincorporated place by adjacent town); State v. Express, 60 N.H. 219 (1880) (levy on
gross receipts of railroad express companies).
36. Curry v. Spencer, 61 N.H. 624 (1882) (legacy and succession tax).
37. 60 N.H. at 24850.
38. This expression, rooted in the social contract language of articles 10 and 12 of the New Hampshire Bill of Rights, emphasizes that the New Hampshire legislature has never exercised sovereign
prerogatives, only delegated powers subject to express reservations.
39. State v. Express, 60 N.H. at 228.
40. Id. at 224–25.
41. Id. at 234 (Stanley, J.); see also id. at 262–63 (Doe, C.J.).
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were exclusive, limiting the legislature‘s more general powers.42 Therefore, the statute was obviously unconstitutional in several ways: it taxed
only express business carried by railroads, not other express business; it
was not a ―tax on property, or on polls or estates,‖ because it did ―not regard the capital invested, the expenses incurred, or the losses sustained;‖
and if it were, it could not be reasonable and proportional because it was
―not on net profits, but on gross receipts.‖43 It would also be a double-tax
on the income producing power of property already taxed at full value.44
Justice Stanley also presumed that if a business tax were permissible, it
necessarily would have to be ―on all business alike.‖45
Chief Justice Doe had a very different constitutional theory. He did
not consider the references to polls and estates in part II, articles 5 and 6 to
be exclusive.46 The omission of the excise clause was not meaningful—
there was a plenary taxing power limited only by the more general clauses
of the New Hampshire Bill of Rights, ―the tax power of New Hampshire is
included in the grant of the supreme legislative power (subject to the limitation of equality on which the whole government is founded) . . . .‖47 He
thought business taxes, even on particular industries, could be constitutionally equal if assuredly passed along to consumers. In the previous year he
had taken a dramatic position:
It is the consumer or user who pays the tax laid upon the manufacture, production, or importation of personal property, whether
the tax is assessed by statute to him, or to the manufacturer, producer, or importer . . . . Legislative power may reenact the law of
nature by assessing the taxes of manufactured and imported goods
upon the consumer and the land-tax upon the tenant, or assess the
former upon the manufacturer and importer and the latter upon the
owner, and leave the law of nature, without reenactment, to employ the manufacturer, importer, and landlord as tax-collectors . . .
.
42. Id. at 235.
43. Id. at 244. Both sub-classification and measurement by gross receipts are now permissible as a
result of the 1903 amendment to part II, article 6.
44. Id. at 245. As will appear later in this article, while ―double taxation‖ remains a concern, the
1903 amendment permits taxes on the income generated by property, in addition to those on the possession of the same property.
45. Id.
46. Id. at 250 (Doe, C.J.).
47. Id. at 249. Doe‘s view seems to have later contributed to an ambivalence in the court‘s analysis
in Curry v. Spencer, 61 N.H. 624 (1882), which held the legacy and succession tax unconstitutional
under part II, article 5 if characterized as a property tax and hypothetically, at least under the New
Hampshire Bill of Rights, a tax on a civil right or privilege.
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Whether the public expense is more justly and wisely divided
by an inevitably unsuccessful effort to tax all property, or by the
taxation of some class or classes of property that can be easily,
equally, and certainly taxed, and the tax of which is equitably collected for the public from all classes of people by the higher government, is not a judicial question. If there is a class of property,
the tax of which, by force of the natural law of tax distribution and
equalization, would be eventually paid in just proportion by the
whole community, the common burden may be wholly put upon
that class.48
Consequently an express company tax could be constitutional if
designed to be an act of taxation, laying upon railway-express
transportation a burden to be equally distributed, by natural law,
among the purchasers of such transportation and their customers,
as a tax laid on any articles of property is distributed among the
consumers or users of the article. The object might be to make the
expressmen mere collectors of the tax.49
However, the Chief Justice discerned no such design and in the absence of contrary evidence presumed ―the legislature did not intend to authorize such expressmen either to add to their charges as much as this statute requires them to pay to the state, or to raise their charges above the
reasonable standard of the common law.‖50 Without this (and without the
possible police power justifications addressed below) the tax failed, whatever its classification:
Whether it is a tax imposed upon person, property, income, business, gross receipts, profits, or earnings, is immaterial. It is a tax
which one class of men are required to pay, and from which all
others are exempt. It is a perfect example of unequal division of
public expense.51
What of the array of income-based assessments of businesses, license
fees, and industry-specific exemptions cited by the attorney general that
appeared to fall short of the constitutional standard? Justice Stanley dis48. Morrison v. Manchester, 58 N.H. 538, 555–56 (1879). After Morrison (in which it was dicta),
this view never secured a majority of the court, and Chief Justice Doe appears to have thereafter deferred to his colleagues‘ more conservative position. However, in the modern world of quasi-excises
on ―classes of property,‖ his original conception may give both comfort and guidance to courts determining the justice of particular classifications.
49. State v. Express, 60 N.H. at 262 (Doe, C.J.).
50. Id.
51. Id. at 263.
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posed of the first by showing the income provisions to be merely methods
of determining the value of property: ―Ferries, wharves, and mills are tangible; and their value can be estimated in different ways, either by taking
their income, or the market or salable value, as the basis.‖52
Chief Justice Doe cautiously discounted the value of early practices as
evidence of constitutional intent by contemporaneous construction,53 and
dealt with the remainder through an elaborate explication of the protective
power as an alternative to the taxing power.
An act entitled an act of taxation may be valid, although not an
exercise of the power of collecting the constitutional shares of expense. The title may be an immaterial misnomer and error of form
only, and the act may be an exercise of some of the other powers
which provide for the common benefit, protection, and security,
and which may be conveniently grouped under the name of the
protective power. A fine, imposed by this power, is practically as
useful to the government as a tax of equal amount; and a protective
law is not invalid merely because it produces public revenue.54
This disposed of the so-called excise on intoxicating liquor,55 the dog
tax, the lightning rod salesman‘s tax,57 other peddlers‘ taxes,58 and the
like. He could have justified
56
a railroad-express tax law, so called . . . designed to be an act of discouragement, like a liquor excise . . . to discourage the employment of
railroad expressmen by increasing their rates, and to encourage other
carriers who cannot successfully compete with railroad expressmen
without the assistance of a protective tariff.59
52. Id. at 239 (Stanley, J.).
53. Id. at 246–47 (Doe, C.J.). Doe believed the founding generation frequently did not apprehend
the full meaning of the constitutional principles and language they adopted. Id. at 247–48. For example, slaves were held and taxed for some years before it was realized that the New Hampshire Bill of
Rights had abolished slavery. Id. at 248. Similarly, during the constitution‘s first four decades, the
legislature reversed judgments and granted new trials, contrary to the separation of powers mandated in
part I, article 37. Id.
54. Id. at 257.
55. Id. at 257–58.
56. Id. at 260.
57. Id. at 261. This was a common source of consumer fraud at the time. As the tax discriminated
between citizens of New Hampshire and those of other states, it was ultimately held unconstitutional.
State v. Wiggin, 64 N.H. 508, 15 A. 128 (1888).
58. State v. Express, 60 N.H. at 261 (Doe, C.J.). Peddling was strictly regulated and had been entirely prohibited in the founding era. State v. Angelo, 71 N.H. 224, 51 A. 905 (1902).
59. State v. Express, 60 N.H. at 261–62 (Doe, C.J.).
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The Chief Justice, however, did not discern, and declined to presume, such
a purpose.60 Also, taking it at face value, Justice Stanley declined to consider whether the statute ―could be regarded as an exercise of the police
power.‖61
That left the problem of exemptions. Industry-specific exemptions
from the general property tax were apparent violations of proportionality.
These seemed different from the implicit exemption of types of property
by omission from the taxable list.62 In the latter sense, ―the selection of
proper subjects of taxation‖ had long been held a necessary legislative prerogative,63 but having once taxed manufacturing property generally, how
could the legislature exempt such industries like linseed oil mills, plating
iron mills, and factories for the manufacture of cotton, woolen yarn, and
cloth?64 As straight-forward bounties, Chief Justice Doe said that a subsidy to promote desirable activities was as much within the protective power,
as a penalty to discourage the undesirable.65 A tax exemption was simply
an efficient type of direct subsidy:
The protective power has been exercised by giving bounties of exemption from taxation, as well as by giving bounties of money obtained by taxation. The generation by whom the constitution was
adopted understood the state could pay a sum of money to an individual, for a public purpose, by exempting him from the payment
of the same amount of tax. They did not understand there would
be any constitutional virtue in going through the form of collecting
money from him, and immediately paying it back to him.66
Otherwise, disproportionate exemptions within classes of taxed property
may be justified as expenditures for a public purpose. The court closed the
logical circle later in 1880: ―Every exemption is an indirect tax upon other
property, and can only be justified where a direct tax upon other property
in its behalf would be within the power of the legislature.‖67
60. Id. at 262. This unwillingness to indulge in saving assumptions stands in marked contrast to the
modern practice. Modern standards of review are discussed infra Part III, particularly sections D and
F.
61. Id. at 233 (Stanley, J.).
62. This is a recurring problem in the modern era, as will appear several times below. The significance of the distinction is addressed infra Part III.D.
63. Opinion of the Court, 4 N.H. 565, 570 (1829).
64. State v. Express, 60 N.H. at 259 (Doe, C.J.).
65. Id. at 260.
66. Id.
67. Franklin St. Soc‘y v. Manchester, 60 N.H. 342, 345–46 (1880) (no implied or constitutionally
required exemption of church property). There is no general establishment clause in the New Hampshire Constitution. Federal First Amendment theory does not treat a non-discriminatory religious
exemption as a subsidy. The more general proposition stated was overbroad, even at the time—a great
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Despite pejorative rhetoric in both opinions about taxes on particular
businesses, State v. Express did not hold them unconstitutional. Earlier in
the same term, the court indicated how a flawed, statewide tax on railroad
property could be made constitutional by substituting a statewide uniform
assessment and rate for a patchwork levy, based on assessments and rates
in various towns where the railroad had property.68 ―[T]he rule of uniformity is coextensive with the territory to which a tax applies, and prevents
unjust discriminations. A state tax must be uniform throughout the state, a
county tax throughout the county, a town tax throughout the town.‖69 The
hint was promptly taken and the statute amended in 1881 to levy the railroad tax in proportion to the statewide average of other property taxes.70
On the same day, a new 1% levy on the property of telegraph companies
(which had formerly been a 2% gross receipts tax) was converted to one
―as near as may be in proportion to the taxation of other property throughout the state.‖71 The legislature had made statewide assessment and averaging possible by creating, in 1878, a state board of equalization.72 This
became the generally accepted method of taxing business at the state level.
A matching tax was levied on telephone companies in 1883,73 on express
companies and sleeping, dining, and parlor cars in 1907,74 and on the intangible value of electric utility franchises in 1931.75 All these taxes were
at the same rate.
No reference was made in State v. Express (or any other opinion before
the constitutional amendment of 1903) to Opinion of the Justices, 53 N.H.
634 (1866), which apparently upheld an income tax of 25% on ―all incomes received . . . during the year previous, accruing from notes, bonds,
or any other securities whatsoever, not otherwise taxed . . . .‖ 76 The court
deal of property remained untaxed at various times simply as a matter of practicality. See Opinion of
the Court, 4 N.H. at 565; see also Morrison v. Manchester, 58 N.H. 538, 555–56 (1879).
68. Boston, Concord & Montreal R.R. v. State, 60 N.H. 87 (1880).
69. Id. at 95.
70. ROBINSON, supra note 13, at 115–16.
71. Id. at 122–23.
72. Id. at 115, 220.
73. Id. at 123.
74. Wyatt v. State Bd. of Equalization, 74 N.H. 552, 552–53, 70 A. 387, 388 (1908).
75. See Pub. Serv. Co. of N.H. v. State, 101 N.H. 154, 136 A.2d 600 (1957). This tax had been
generally approved the prior year in Opinion of the Justices, 84 N.H. 559, 149 A. 321 (1930).
76. Opinion of the Justices, 53 N.H. 634, 635 (1866) (Published several years out of sequence in the
Official Reporter. Notable discrepancies between date of decision and sequence in the Reports, particularly for advisory opinions, lasted well into the twentieth century.). This tax could have been sustained as a property tax, taxing (once) property acquired after the annual tax day for the general property tax. However, it was not proportional according to the view prevailing after State v. Express because
it was levied at a rate different from the rate for other property. In the one subsequent case, Opinion of
the Justices, 77 N.H. 611, 93 A. 311 (1915), the majority adopted the view that this opinion had actually affirmed the constitutionality of the tax as a tax on property. Perhaps because it appeared to extend
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at that time saw ―nothing in the form in which the tax is to be assessed and
raised, nor in the general description of the property proposed to be taxed,
that can be alleged as a legal objection to the validity of the law.‖77 This
cannot be reconciled with State v. Express and its kin. It would be decades
before such a view was again expressed by a majority of the court.78 From
1880 to at least 1923, it was generally believed that all property taxes at a
given level of government had to be levied not only ad valorem, but also at
the same rate and valuation.79
This model could not be reconciled with existing taxes on banks and
insurance companies. These were levied as percentages of deposits, capital, premiums, and the like. Such taxes at fixed rates necessarily differed
from the annually floating rate of the basic property tax, and the bases were
not all easily described as property or estates. Their existence was one
basis of the attorney general‘s argument for a plenary taxing power in both
Boston, Concord & Montreal Railroad v. State and State v. Express.80
Most of these were rationalized, albeit at the cost of confirming an alternative revenue theory—the concept of a voluntary payment for an accepted privilege. As such, the tax on commercial banks had already been
removed from the ―true‖ tax category:
It has been argued that the annual payment of one per cent. on
the capital of banks required to be paid to the literary fund is in
substance a double tax. But it is not named nor assessed as a tax; it
is a fixed sum paid yearly, and not varying in amount like other
taxes, according as they are voted in different places and in different years; and has more the character of a bonus voluntarily paid
for the right to exercise the privilege of banking than of an ordinary tax.81
The tax of 1% on the premiums paid to foreign insurance companies was
expressly structured as a condition voluntarily accepted, to secure the lito U.S. securities exempt under the U.S. Constitution, the tax seems not to have been put into effect. It
is not mentioned in MAURICE H. ROBINSON, A HISTORY OF TAXATION IN NEW HAMPSHIRE (1903).
77. Opinion of the Justices, 53 N.H. at 635 (out of chronological sequence in the Official Reports).
78. Opinion of the Justices, 77 N.H. at 611, 93 A. at 311. The court cited the 1866 opinion in support of an income tax, but even then the proposed tax was to float at the same rate as the general property tax, not at a separate, fixed rate. Id. at 617, 93 A. 314.
79. Opinion of the Justices, 81 N.H. 552, 120 A. 629 (1923) (interest and dividend income were
taxable, but only at the uniform rate). A different rate for income taxes was not approved until Opinion
of the Justices, 82 N.H. 561, 138 A. 284 (1927).
80. Boston, Concord & Montreal R.R. v. State, 60 N.H. 87, 92 (1880); State v. U.S. & Can. Express
Co. (State v. Express), 60 N.H. 219, 224–33 (1880).
81. Nashua Sav. Bank v. City of Nashua, 46 N.H. 389, 399 (1866); accord Rockingham Ten Cent
Sav. Bank v. Portsmouth, 52 N.H. 17 (1872); Wyatt v. State Bd. of Equalization, 74 N.H. 552, 70 A.
387 (1908).
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cense to do business in New Hampshire.82 It stood unchallenged until
1937, when the supreme court ratified this view:
The ―tax‖ imposed in 1869 [on foreign insurance company
premiums], whatever its name, appears, at least until the constitutional amendment of 1903, to have been unsustainable as a tax.
But it was sustainable as a condition for prosecuting business in
New Hampshire in somewhat the same manner as the gasoline
―tax‖ was conceived to be properly levied as a toll for the use of
the highways.83
In 1896, a requirement that railroads pay statutorily defined excess
profits into the state treasury was sustained against taking and disproportionality attacks on the same basis—it was a condition on privileges voluntarily assumed by railroads.84
Unfortunately, the very lucrative85 tax on savings bank deposits had
been repeatedly and explicitly held to be a property tax.86 The savings
bank tax could not be fit into the court‘s constitutional framework until
1927, when the constitutional amendment of 1903 was interpreted to permit different tax rates on different classes of property. 87 The nineteenthcentury court frankly admitted this and ―grandfathered‖ the tax with a
combination of prescription and necessity: ―The savings-bank tax . . . is an
anomaly, resting on peculiar grounds of public policy, and is universally
understood to have acquired the position of an exception to the constitutional rule of equality.‖88
Modest license charges needed no privilege theory or special protective power analysis, so long as they were ―merely an equivalent for the
service rendered‖ in a legitimate regulatory scheme.89 Throughout this era,
there were also anomalous fees or taxes on certain corporations when chartered or re-capitalized on the basis of amount of authorized capital, with
declining rates as capitalization increased.90 Such graduation was not consistent with the fee theory and was impermissibly disproportional in a true
tax. Nor is it clear that it could have been justified under the police power
82. ROBINSON, supra note 13, at 119.
83. New York Life Ins. Co. v. Sullivan, 89 N.H. 21, 29, 192 A. 297, 301 (1937) (citation omitted).
84. State v. Manchester & Lawrence R.R., 69 N.H. 35, 38 A. 736 (1897).
85. In 1877, it produced over $30 million. ROBINSON, supra note 13, at 118. By 1893, it produced
over twice as much as the taxes on tangible personal property and more than half the total taxes for all
real estate. Id.
86. Nashua Sav., 46 N.H. at 398–99; Rockingham Sav., 52 N.H. at 27.
87. Opinion of the Justices, 82 N.H. 561, 138 A. 284 (1927).
88. Boston, Concord & Montreal R.R. v. State, 62 N.H. 648, 649 (1883); see also Wyatt v. State Bd.
of Equalization, 74 N.H. 552, 556, 70 A. 387, 390 (1908).
89. State v. Forcier, 65 N.H. 42, 42, 17 A. 577, 577 (1889) (apothecary and druggist license).
90. ROBINSON, supra note 13, at 126–27.
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or as a condition on a privilege.91 However, the court was not called on to
resolve its constitutionality, perhaps because of the small amounts involved.92
After State v. Express, there was one more dramatic nineteenth-century
tax case. In 1879, the legislature adopted a death duty on legacies and successions.93 The rate was 1%, with an exemption for property passing to
surviving spouses, children, and grandchildren. In 1882 the court declared
it unconstitutional in Curry v. Spencer.94 Once again, the court was ambivalent about whether there could be taxes on ―privileges,‖ but if there
could be, the equality and proportionality rules would still govern:
All measures for the imposition or collection of taxes must
therefore conform to this general principle of just equality; and
hence it is immaterial whether the tax imposed by c. 64 is to be regarded as a tax on property or upon a civil right or privilege, for
the same principle of equality and due proportion applies to every
species of tax alike.95
Either theory left the tax unconstitutional: ―If it is to be regarded as a tax
on property, it is open to the objection of unequal and double taxation, and
if it is to be regarded as a tax on a civil right or privilege, it is discriminating and disproportional.‖96 Nor would a cost-recovery, fee theory save it—
because of the exemptions.97 Such exactions must fall proportionally on
all classes of beneficiaries.98
The requirement that fees be uniform was reemphasized in an 1889 decision that became the lead case in New Hampshire on equal protection in
general.99 The State indicted Dr. Pennoyer for practicing medicine without
91. Such fees and privilege charges had to be uniform and proportional, apparently without exemptions. Curry v. Spencer, 61 N.H. 624, 631 (1882) (legacy and succession tax unsustainable as a fee to
support the probate system). ―If one estate was entitled to be . . . settled [in probate] without payment
of fee, all were.‖ Thompson v. Kidder, 74 N.H. 89, 97, 65 A. 392, 396 (1906) (sustaining a similar tax
as authorized by the constitutional amendment of 1903). It is not clear whether, and if so why, an
exemption under these theories could not be sustained under a protective power subsidy theory.
92. ROBINSON, supra note 13, at 127 (listing amounts realized).
93. 1879 N.H. Laws ch. 64, invalidated by Curry v. Spencer, 61 N.H. 624 (1882).
94. Curry, 61 N.H. at 631.
95. Id.
96. Id. It would be a double property tax because much of the property passing would have already
paid the annual general property tax. Id. It would also be disproportionate because of the exemption of
surviving spouses, children, and grandchildren. Id. This latter view of disproportionality no longer
prevails because the court accepted a protective power justification in distinguishing charitable or intrafamily transfers. Thompson v. Kidder, 74 N.H. 89, 65 A. 392 (1906); Estate of Robitaille v. N.H.
Dep‘t of Revenue Admin., 149 N.H. 595, 827 A.2d 981 (2003).
97. Curry, 61 N.H. at 631, 632.
98. Id. at 632.
99. State v. Pennoyer, 65 N.H. 113, 18 A. 878 (1889). The court stated:
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a license.100 His constitutional objection was that certain practitioners had
been grandfathered on an arbitrary basis (continuous residence in one
town) unrelated to qualification.101 On a motion to quash, the supreme
court declared the statute unconstitutional:
For the right to continue the pursuit of his profession, one physician is not, while another, his neighbor, who may be his equal or
superior in learning, experience, and ability, is, required to pay five
dollars. This is not the equality of the constitution. The magnitude
of the unequal burden is not material. If any inequality were permissible, the discrimination might be made prohibitory, and a monopoly of the business given to physicians who have resided in a
town or city for a specified time.102
At least five rules were settled in this era. First, all taxes had to be on
polls or estates. Second, except for the savings bank tax, all taxes on estates by a given unit of government had to be at one rate with uniform valuation. Third, express tax exemptions were permissible to the extent that a
bounty or subsidy under the protective power would be. Fourth, regulatory
penalties and license fees were exercises of the protective power, not taxes,
but subject to general requirements of uniformity and equality. Fifth,
monetary charges for privileges voluntarily accepted were not taxes. All of
these, but the first (changed by constitutional amendment), have endured.103
C. 1903–1940: Constitutional Change, the Struggle to Give it Meaning
There were no significant constitutional challenges to the state‘s tax
system in the two decades after State v. Express and Curry v. Spencer, nor
were there any new attempts to assert a plenary taxing power. However,
there was increasing demand for constitutional revision to broaden the taxing power. The Constitutional Convention of 1902 considered several
The fourteenth amendment of the constitution of the United States, providing that ―no state shall
make or enforce any law which shall abridge the privileges or immunities of citizens of the United
States . . . nor deny to any person within its jurisdiction the equal protection of the laws,‖ adds
nothing to the rights and liberties of the citizens of this state. It merely confirms to them by federal sanction the rights secured by the action of their ancestors a century ago. It has wrought no
change in the law of the state. An enactment obnoxious to this provision of the national constitution is in New Hampshire no more ineffective than it would be in its absence.
Id. at 115, 18 A. at 880 (omission in original).
100. Id.
101. Id. at 117, 18 A. at 880.
102. Id. at 117, 18 A. at 881.
103. Revenues based on the protective power or privilege theories will be addressed in a forthcoming
article about non-tax revenues.
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proposals to permit new forms of taxation. It rejected a general power to
impose ―any kind of tax under heaven or known among civilized men . . .
.‖104 Instead, the Convention proposed narrower revisions. The voters
rejected an amendment permitting a tax on income from certain intangibles.105 They adopted, however, a seemingly modest addition to the legislature‘s authority to tax property. The reference in part II, article 6 to
―polls and estates‖ was supplemented with the phrase ―and other classes of
property, including franchises and property when passing by will or inheritance.‖106 For more than three decades the court struggled with the necessary implications of this seemingly simple phrase.
The new power was exercised in 1905 with the adoption of a tax on
legacies and succession,107 and promptly challenged in Thompson v. Kidder.108 Perhaps inspired by Chief Justice Doe‘s theory that the taxing
clauses of part II of the constitution were subordinate to the equality clauses of the New Hampshire Bill of Rights,109 the challengers argued the tax
violated part I, article 12 and the unchanged proportionality requirement of
part II, article 5:
It is not claimed that the language of article 6, as it now stands,
is not sufficient to authorize legislation of this character; but the
contention is that such action is contrary to the requirements of
other provisions of the instrument, namely, article 12 of the bill
of rights,—―Every member of the community has a right to be
protected by it in the enjoyment of his life, liberty, and property. He is, therefore, bound to contribute his share in the expense of such protection,‖—and the provision of article 5, part
104. STATE OF NEW HAMPSHIRE, CONVENTION TO REVISE THE CONSTITUTION 597 (1903) (remarks
of delegate Chandler). This seems to refer to an early proposal by Chandler to amend article 6 allowing
taxes on polls and estates ―by taxation in such other method as may be equal, equitable, and just.‖ Id.
at 250. That proposal was later postponed indefinitely on Chandler‘s own motion. Id. at 684. Strangely, in Opinion of the Justices, 77 N.H. 611, 93 A. 311 (1915), the majority seemed to assert that the
amendment submitted to the people was the one characterized as permitting ―any kind of tax under
heaven‖ and to partly rely on that to permit taxing income. Id. at 77 N.H. at 616, 93 A. at 313. Both
the CONVENTION TO REVISE THE CONSTITUTION and the final language of the amendment demonstrate
that this was mistaken. That the amendment actually adopted was intended more narrowly was soon
clarified, and that view has since prevailed. Conner v. State 82 N.H. 126, 130 A. 357 (1925).
105. Opinion of the Justices, 77 N.H. at 627, 93 A. at 318 (Peaslee, J., dissenting).
106. The choice of article 6 and neglect of Article 5 was a bit odd:
Article 6, as it stood before the amendment . . . while assuming that only polls and estates were
proper subjects of taxation, was intended to secure proportional assessments by requiring frequent
revaluations. The main purpose of the amended article is to declare the subjects of taxation. Logically, in its main purpose article 6 might now perhaps more properly stand as an addition to article 5, devoted to an enumeration of powers granted to the general court.
Thompson v. Kidder, 74 N.H. 89, 95, 65 A. 392, 395 (1906).
107. 1905 N.H. Laws ch. 40.
108. 74 N.H. 89, 65 A. 392 (1906).
109. See State v. U.S. & Can Express (State v. Express), 60 N.H. 219, 249–50 (1880).
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second, granting ―full power and authority‖ to the general court
―to impose and levy proportional and reasonable assessments,
rates, and taxes upon all the inhabitants of, and residents within,
the said state, and upon all estates within the same.‖110
Such an argument could hardly prevail over a constitutional amendment with ―express language admittedly sufficient for the purpose.‖111 As
with poll taxes, which had never been proportional in the commonly accepted senses,112 a tax expressly authorized was necessarily constitutional,
despite disproportionality.113
However, the exception to the general constitutional rule did not extend beyond logical necessity. It was not
necessary to conclude, because by amendment an additional disproportional tax has been authorized, that it was intended to abrogate the fundamental rule of equal rights or the general rules of equality and proportion as to other taxes. All taxes that can be made proportional must
be so assessed.114
The tax, where applicable, was at a uniform rate of 5%, so there was
no issue of graduation.115 All persons were equally privileged to dispose of
property in either taxable or non-taxable ways, and similarly to inherit.116
The only possible inequality was in the exemption, which the court found
permissible: ―There are good reasons why the passing of property to near
relatives, or the gift of it to charitable purposes or directly to the public,
should not be subject to an exaction by the state.‖117
110. Thompson, 74 N.H. at 90, 65 A. at 393.
111. Id. at 94, 65 A. at 395.
112. Id. at 96, 65 A. at 396.
113. Id.
114. Id.
115. Different rates based on relationship to the deceased were tentatively approved in Opinion of the
Justices, 76 N.H. 597, 79 A. 490 (1911), an opinion declining to reach the question of graduation based
on the amount of estate or legacy. Graduation based on amount was later rejected in an advisory opinion. Opinion of the Justices, 81 N.H. 552, 120 A. 629 (1923). Both forms of graduation were ultimately rejected in Williams v. State, 81 N.H. 341, 125 A. 661 (1924).
116. Thompson, 74 N.H. at 97, 65 A. at 396.
117. Id. The court did not elaborate on those reasons. It cited two cases from other states. The first,
Minot v. Winthrop, 38 N.E. 512 (Mass. 1894), refers to the lesser ―moral claim of collaterals and strangers.‖ Minot, 38 N.E. at 516. The other referred to a widow or daughter deprived of ―her natural
protector.‖ Nunnemacher v. State, 108 N.W. 627, 637 (Wis. 1906). The exemption seems to be based
on a protective power theory, but the court also invoked a general power to reasonably ―omi[t] . . . from
the description of the property required to be taxed.‖ Thompson, 74 N.H. at 97, 65 A. at 396. The
difference is that between a permissible subsidy of the acts or parties benefited by the exemption, and
simply confining the taxable class of property as that passing to collateral relatives and unrelated persons. See infra Part III.CD.
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269
For some time, the legacy and succession tax seems to have been
thought the only innovation permitted under the 1903 amendment.118 The
new power to tax ―other classes of property‖ did not immediately change
the rule that all taxes on property (other than legacies and successions and
deposits in savings banks) had to be at the same rate throughout each taxing district.119 The people rejected constitutional amendments permitting
the ―tax[ation] of credits at a less[er] rate than other property,‖120 and a
lesser rate for standing timber121 in 1912, and graduated income taxes in
1920 and 1921.122
Without apparently realizing it, the court took the first step toward differential tax rates on classes of property in 1915. The House of Representatives requested an advisory opinion on a proposal to exempt certain securities from the general property tax and to instead tax the income derived
from them ―at the uniform rate‖ (taken to mean the same rate as imposed
on other property).123 This was the beginning of the interest and dividends
tax (IDT). A four-justice majority advised that the proposal was constitutional. Removing classes of property from the list of taxable estate was
incontestable.124 They believed using the uniform property tax rate cured
the disproportionality fatal to a previous interest and dividends tax proposal.125 Taxing money which might also have been taxed as part of the property of the securities issuer raised issues of double taxation, but the majority resolved them.126
The remaining question was whether this apparent income tax was
constitutionally authorized:
118. General corporate franchise taxes, when ultimately considered, ran into insuperable obstacles.
See infra text accompanying notes 15153.
119. The possibility of a different rate of taxation on railroad property was raised without decision in
Wyatt v. State Board of Equalization, 74 N.H. 552, 553, 70 A. 387, 388 (1908), but the court reasserted
that all property was to be taxed at the same rate in Opinion of the Justices, 76 N.H. 588, 596, 79 A. 31,
34–35 (1911)—which proposed differential assessment of stocks and similar investments—and in
Opinion of the Justices, 76 N.H. 609, 85 A. 757 (1913)—which proposed differential rate for standing
timber.
120. Opinion of the Justices, 77 N.H. 611, 616, 93 A. 311, 314 (1915).
121. Id. at 625, 93 A. at 318 (Peaslee, J., dissenting).
122. Convention to Revise the Constitution, January 20, 1920, in NEW HAMPSHIRE CONSTITUTIONAL
CONVENTION, CONVENTION TO REVISE THE CONSTITUTION, JUNE 5, 1918, JAN. 13, 1920, JAN. 28, 1921
376 (1918) [hereinafter CONVENTIONS 1918–21]; Special Session, Convention to Revise the Constitution Held January 28, 1921 in CONVENTIONS 1918–21 at 393, 432; see also Williams v. State, 81 N.H.
341, 348, 125 A. 661, 665 (1924), overruled by Amoskeag Trust Co. v. Trs. of Darthmouth Coll., 89
N.H. 471, 200 A. 786 (1938) (overruling the holding that in the absence of testamentary directions, the
federal estate tax must be charged pro rata against all the beneficiaries rather than solely against the
residuary legatee).
123. Opinion of the Justices, 77 N.H. at 612–13, 93 A. at 312.
124. Id. at 612, 93 A. at 312.
125. Id. at 613, 93 A. at 312. The court again required the same rate for incomes and other property
in Opinion of the Justices, 81 N.H. 552, 554, 120 A. 629, 630 (1923).
126. Opinion of the Justices, 77 N.H. at 613–15, 93 A. at 312–13.
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It may be said that the proposed tax is in effect an income tax.
An income tax is generally understood to be a tax an arbitrary
rate—an excise tax. It has even been held not to be a property tax,
and to be a direct tax under the federal Constitution. But the fact
that this tax in certain of its features resembles an income tax does
not place it beyond the legislative power of classification.127
Although it referred to the anomalous 1866 opinion upholding an income
tax,128 the majority did not ―express an opinion as to the validity of the
taxation of incomes‖ when approving the proposal as a tax on property
received by the investor, which would otherwise have been taxable in the
hands of the issuer.129 This was just a rearrangement of the formal incidence of a tax on estates; it was as constitutionally indifferent as whether
real estate was taxed to the mortgagor or mortgagee.130 Possible implications of the new constitutional authority to tax ―other classes of property‖
were not considered or, apparently, even noticed.131 Treating income as a
category of estate, the court said investment income had to be taxed at the
same rate as other property.132
Justice Peaslee wrote a long and compelling dissent, demonstrating
that taxing some incomes at the same rate as property could not be in any
meaningful sense proportional. The resulting effective rates were radically
different:
The practical situation presented by the proposed law is this: The
owner of a farm worth $ 1,000 pays (at a two per cent rate) a tax of
$ 20, while the owner of a five per cent note for $ 1,000 pays a tax
of $ 1. Upon whatever theory it is founded and by whatever argument it is justified, the practical, everyday result is that this inequality exists as between those two neighbors. Two property taxpayers of equal property, of equal ability to pay, and with equal duty
to support the state, are taxed unequally by the ratio of 20 to 1.133
Despite Justice Peaslee‘s analysis, the court clung for some years to the
irrational proposition that gross incomes were a taxable ―estate‖ and while
taxing them was permissible, the rate applicable to static property was re-
127. Id. at 615, 93 A. at 313 (citations omitted).
128. Id. at 617, 93 A. at 314 (citing Opinion of the Justices, 53 N.H. 634 (1866)).
129. Id. at 617, 93 A. at 314.
130. Id. at 613, 93 A. at 312 (citing Morrison v. Manchester, 58 N.H. 538 (1879)).
131. Conner v. State, 82 N.H. 126, 128–31, 130 A. 357, 358–60 (1925) (Peaslee, C.J.) (Chief Justice
Peaslee had dissented in 1915).
132. Opinion of the Justices, 77 N.H. at 616, 93 A. at 318.
133. Id. at 625, 93 A. at 318 (Peaslee, J., dissenting).
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quired.134 However, in 1925, with Justice Peaslee writing for the court, it
discovered the rationale for taxing incomes as property, but differently,
despite manifest disproportionality.
The occasion was a constitutional challenge to the interest and dividends tax adopted in 1923.135 Invoking nineteenth-century decisions forbidding taxation of shares in the hands of shareholders of corporations
already taxed on their property,136 the challengers alleged it was a disproportionate double-tax. The court conceded this, but found the disproportion necessarily authorized by the 1903 amendment permitting taxation of
―other classes of property‖:
In 1903 a fundamental change was made in the people‘s grant
of the taxing power. In the generation just preceding that time, the
idea that the constitutional provision for contribution of ―his share‖
by each taxable party meant a share determined by a common and
unvarying method had been upheld and amplified in great detail
and with a wealth of argument.
....
What was intended by the grant of power to tax ―other classes
of property‖? Other provisions of the amendment show, by elimination, what it does not mean. It does not refer to any form of tax
upon estates—that is, to taxes upon ownership, possession or enjoyment of property. It had theretofore been decided that the term
estates covers all these matters.137
As all ownership, possession, or enjoyment of property was already taxable
under existing powers, the new language must have intended something
else:
[T]he provision means that property may be taxed for reasons other than ownership. The test of taxability may be put upon other
grounds. ―Other classes of property‖ is here used as the equivalent
for property otherwise classified. The incidence of the tax is to be
determined by some fact other than mere ownership.138
134.
135.
136.
137.
138.
Opinion of the Justices, 81 N.H. 552, 554, 120 A. 629, 630 (1923).
Conner, 82 N.H. at 126, 130 A. at 357.
E.g., Robinson v. Dover, 59 N.H. 521 (1880); Smith v. Burley, 9 N.H. 423 (1838).
Conner, 82 N.H. at 12728, 130 A. at 358.
Id. at 128–29, 130 A. at 359.
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Once it was clear that other classes of property could be taxed on a different basis from, and necessarily in addition to, estates, the logic that permitted double taxation of inheritances139 in Thompson v. Kidder140 applied.141
The power to tax other classes of property, or property classified in some way other than as estate, was granted. No form of tax
coming within this description, which would not impinge upon the
rules theretofore laid down as to constitutional limitations upon the
power to tax property, has been suggested. It is believed that none
can be found. The implied exception from earlier provisions is necessary if this phrase in the amendment is to be given any effect.142
The expressed power to define and tax classes of property based on something other than ownership, possession, or enjoyment necessarily precluded
a challenge to any double taxation or other disproportionality inherent in
the difference between the classes.143 Taxable estates were ―static‖ property, the new classes were ―dynamic.‖144 The distinction has also been described in the modern era as the difference between static property and
―property in motion.‖145
This re-conceptualization of the 1903 amendment is the foundation of
most modern state taxes. It was not, however, the breakthrough hoped for
by the advocates of plenary taxing power. In 1927, during a burst of fiscal
creativity, the legislature submitted to the court two proposals: a comprehensive scheme of occupational taxes with ―118 separate classes, each with
one or more schedules of stated charges,‖ and an income tax.146
The court, apparently shocked, declared that the occupational taxes
―appear[ed] to have been drawn without any reference to the structure of
our state government‖ and ―unquestionably exceed[ed] the legislative
power.‖147 The legislature characterized these as ―privilege‖ taxes, but the
court noted that
[m]any of the occupations or acts thus sought to be levied upon involve only the ordinary transactions of private life. They contain no
139. While the constitutional language is ―property passing by will or inheritance‖ and the related
legislation usually refers to legacies and succession, I will sometimes follow the frequent practice of
the court by referring to these as inheritance taxes.
140. 74 N.H. 89, 65 A. 392 (1906).
141. Conner, 82 N.H. at 129, 131, 130 A. at 360.
142. Id. at 129, 130 A. at 359.
143. Id. at 130, 130 A. at 359.
144. This distinction was first made by Justice Peaslee in his dissent in Opinion of the Justices, 77
N.H. 611, 621, 93 A. 311, 316 (1915) (Peaslee, J., dissenting), and adopted in the same terms by the
court in Opinion of the Justices, 84 N.H. 559, 576, 149 A. 321, 330 (1930).
145. Opinion of the Justices, 95 N.H. 537, 539, 64 A.2d 320, 321 (1949).
146. Opinion of the Justices, 82 N.H. 561, 563, 566, 138 A. 284, 286–87 (1927).
147. Id. at 563, 138 A. at 286.
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element subject to supervision either under the police power or as
things affected with a public use.148
This would not have been permitted even under the rejected excise clause
of the Massachusetts Constitution.149
The same proposals were addressed as taxes on ―franchises,‖ a form of
tax expressly permitted by the 1903 amendment. Such a franchise was a
―right to do certain things, giving a power to enter upon transactions which
is not possessed by the people as of common right . . . .‖150 Not only did
many of the occupations taxed lack this quality, they were also subject to
different rates, and franchise taxes were subject to the same rules of proportionality among all holding the franchise.151
In reply to a general question about taxing corporations differently
from those engaged in similar businesses, the court laid down what became
a fundamental principle of New Hampshire tax law:
If the privilege is taxed when held by a corporation, it must be
when exercised by collective owners associated together under
some other form of agreement, or by an individual. Singling out
corporations, and taxing them upon privileges, while permitting
other holders of like privileges to go tax free, is a discrimination
not permitted by the constitution.152
Of course, a corporate charter of perpetual succession and limited liability is itself a franchise, but if
the bare franchise to be a corporation is to be considered as property, and therefore taxable, it could be taxed only upon an ad valorem basis. The valuation would necessarily be confined to an
appraisal of the worth of the power to be a corporation, as distinguished from the power to do certain business.153
The court volunteered an alternative. A franchise, being both a property right and a privilege voluntarily assumed, could be either taxed as prop148. Id.
149. Id. (citing O‘Keeffe v. City of Somerville, 76 N.E. 457 (Mass. 1906)). That clause has been
subject to widely varying construction. The history is recounted in Opinions of the Justices to the
Governor, 556 N.E.2d 1002 (Mass. 1990), in which a bare majority finally concluded that the word
―commodities‖ was sufficiently comprehensive to permit a tax on the sale of services.
150. Opinion of the Justices, 82 N.H. at 564, 138 A. at 286.
151. Id. at 565, 138 A. at 287.
152. Id.; accord Opinion of the Justices, 111 N.H. 206, 278 A.2d 348 (1971); Opinion of the Justices,
84 N.H. 559, 149 A. 321 (1930). The concept has been applied evenhandedly—it would be fatal to a
proposed tax on business incomes to exclude income of corporations. Opinion of the Justices, 84 N.H.
at 573, 149 A. at 328.
153. Opinion of the Justices, 82 N.H. at 565, 138 A. at 287.
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erty or, without need of proportionality, be granted on condition of a payment. ―[T]he power to impose conditions upon grants is not to be treated
as a power to tax, as taxation is understood in this jurisdiction.‖154 It had
long been held that a payment could be exacted as a condition on granting
a true privilege.155 The court did not choose to identify anything other than
corporate capacity that could be treated as a privilege. Concluding that, as
a whole, the specific legislation before them was irretrievably unconstitutional, the court declined ―to examine the long list of occupations, etc.,
which the bill declare[ed] to be privileges, or to attempt to ascertain the
validity of such a classification.‖156
The income tax would have been constitutional, despite being levied at
a rate different from that on ―estates‖ (i.e. the general property tax), but for
the fact that different rates were hypothesized for different types of income.157 The previous opinion that all taxes on ―other classes of property‖
had to be at common rate158 was ―no longer tenable.‖159 This however, was
done in a way that introduced the idea that classification of property, by
distinctive events, created classes of taxes:
The rule is firmly established that all taxes of a given class
must be laid at a common rate. This rule applies to annual taxes
upon estates, and to inheritance taxes. The reasoning in the case
last cited leads to the conclusion that the principles there enunciated must be applied in the taxation of incomes. The rate must
be uniform.160
In 1930, and again in 1937, the court confirmed that taxes on receipts from
sales were a fourth class of tax that could not be correlated with those on
estates, inheritances, and incomes, justifying a different rate.161 They
might be thought a fifth class, but franchises as such are static property, to
be correlated by rate and valuation with the general property tax.162
154. Id. at 565, 138 A. at 287. Monetary exactions in return for grants of privileges are dealt with
infra Part IV.F.
155. Rockingham Ten Cent Sav. Bank v. Portsmouth, 52 N.H. 17 (1872); Nashua Sav. Bank v. City
of Nashua, 46 N.H. 389, 399 (1866); accord Wyatt v. State Bd. of Equalization, 74 N.H. 552 , 70 A.
387 (1908).
156. Opinion of the Justices, 82 N.H. at 566, 138 A. at 287.
157. Id. at 570, 138 A. at 289.
158. Opinion of the Justices, 77 N.H. 611, 93 A. 311 (1915).
159. Opinion of the Justices, 82 N.H. at 570, 138 A. at 289.
160. Id. (emphasis added) (citations omitted). The court also stated that ―all income taxes must be
laid at a common rate.‖ Opinion of the Justices 84 N.H. 557, 571, 149 A. 321, 327 (1930).
161. Opinion of the Justices, 88 N.H. 500, 190 A. 801 (1937); Opinion of the Justices, 84 N.H. 559,
149 A. 321 (1930).
162. Opinion of the Justices, 84 N.H. at 576, 149 A. at 330.
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Throughout this era, differences in rate or valuation between taxes on
classes of property were justifiable only when the type of tax could not be
―correlated and made uniform with the average of the general property tax .
. . and disproportion [was] inevitable.‖163 So firm was the notion that uniform rates were required within broad classes of taxes, that a proposed tax
on the annual increment of growing timber was ―in the nature of an income
tax,‖ and had to be ―coordinated with other income taxes.‖164 However,
the broad classes were not exhaustive. On the same day it issued the timber increment opinion, the court advised that a timber severance tax would
be in a class by itself, and it ―could not be correlated with other taxes, and
therefore the rate could be fixed without direct relation to that imposed by
other taxing statutes.‖165
There were several opinions during this era attempting to clarify and
apply standards for exemptions.166 The use of conditional grants of privileges as an alternative to taxation was expressly affirmed. 167 However, the
great and lasting work of this period was the court‘s determination that the
―other classes of property‖ made taxable in 1903 necessarily included
property determined by ―some element other than ownership, possession or
enjoyment,‖168 that the power to define and tax such property necessarily
permitted some forms of double taxation, and that, when differing classes
of property could not be rationally correlated, uniformity of rate and assessment were not meaningful and therefore not required.
D. 1940–Present: Proliferation of Categories
1. Latent Issues About the Power to Classify
At least as early as 1930, the court recognized that taxes on ―distinctive
class[es] of property . . . imposed upon a certain event‖ shared some of the
163. Opinion of the Justices, 88 N.H. at 505, 190 A. at 805.
164. Opinion of the Justices, 84 N.H. at 578, 149 A. at 334.
165. Id. at 575, 149 A. at 329.
166. See generally Opinion of the Justices, 84 N.H. 559, 149 A. 321 (proposed exemptions from
income tax excessive); Eyers Woolen Co. v. Town of Gilsum, 84 N.H. 1, 146 A. 511 (1929) (aid to a
new textile mill not a public purpose). ―[I]ndustrial welfare and general prosperity is not a valid reason
for the aid.‖ Opinion of the Justices, 88 N.H. 484, 488, 190 A. 425, 428 (1937). The court has since
recanted this position. Opinion of the Justices, 142 N.H. 95, 100, 697 A.2d 120, 123 (1997) (citations
omitted).
167. See generally New York Life Ins. Co. v. Sullivan, 89 N.H. 21, 192 A. 297 (1937) (business by
foreign insurance companies); Opinion of the Justices, 82 N.H. 561, 138 A. 284 (1927) (charge for
corporate capacity); Opinion of the Justices, 81 N.H. 552, 554, 120 A. 629, 287 (1923) (gasoline ―tax‖
as toll for privilege of motor vehicle use of highways).
168. Conner v. State, 82 N.H. 126, 128, 130 A. 357, 359 (1925).
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characteristics of an excise.169 However, they remain property taxes and
must be laid ad valorem.170 ―[T]he taxing power is fixed by the language
of the amendment and not by a classification of taxes by authorities upon
economics.‖171
Classes of ―property in motion‖ could be defined and taxed. Some of
those classes were so incommensurable with others that meaningful proportionality was impossible and differing rates were justified. However,
the nature and limits of the classification process had not been explored.
When a tax was levied on something other than the ―ownership, possession, or enjoyment‖ of property, what connection, if any, was there between the kind of property in the class and the ―other grounds‖172 for levying the tax, the ―characteristic event‖173 that justified classification? Timber, when severed, was an approved classification.174 Yet that was based
on ―a characteristic event, not common to other property.‖175 What of an
event that was common to multiple types of property? Before 1940, the
court appeared to believe that the event was the controlling factor, at least
to the extent rates or valuations differed between classes. The 1903
amendment gave authority to
lay various kinds of ad valorem taxes upon property, incident upon
some characteristic event, which may fairly be considered to reasonably delimit a class of property, so that the selection cannot be
rejected as arbitrary, if the event itself affords some rational basis
for the imposition of a tax.176
Thus one could tax sales, incomes, and inheritances; but must each
kind of taxed property, sharing the defining event, be taxed at the same
rate? Exemptions could differ within sub-classes,177 producing different
effective rates. The principal opinion authorizing exemptions varying by
type of income referred equivocally to both the protective power and the
power of classification.178
―The rule [was] firmly established that all taxes of a given class must
be laid at a common rate.‖179 But classes were anything but ―given.‖ If,
169.
tax).
170.
171.
172.
173.
174.
175.
176.
177.
178.
179.
Opinion of the Justices, 84 N.H. at 575–76, 149 A. at 329–30 (approving a timber severance
Id. at 576, 149 A. at 330.
Id.
Conner, 82 N.H. at 128, 130 A. at 359.
Opinion of the Justices, 84 N.H. at 575, 149 A. at 329.
Id. at 575, 149 A. at 330.
Id. at 575, 149 A. at 329 (emphasis added).
Id. at 576, 149 A. at 330.
Id. at 571, 149 A. at 328; Opinion of the Justices, 82 N.H. 561, 573, 138 A. 284, 290–91 (1927).
Opinion of the Justices, 82 N.H. 561, 57071, 138 A. 284, 289 (1927).
Id.
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for example, sale of goods at retail defined the class, was failure to include
all such sales an exemption? Among those sales taxed, could there be differing rates for separate classes or subclasses? If so, on what basis? The
court had approved taxing one sort of income defined by its source. What
were acceptable classes of income? Were some so incommensurable that
the rates could differ? Ultimately, what was a distinct class of property in
the constitutional sense?
I will deal with the modern era first by analyzing the decision that inaugurated it, then by tracing the court‘s treatment of sales, income, franchise, and estate taxes, as well as some issues that cross all categories.
These categories, however commonly used, are also highly artificial in
New Hampshire. As our taxes are on property, not persons, formal incidence in terms of the payor is largely irrelevant.180 Who pays and how are
matters of convenience, efficiency, and the politics of appearances. Labels, as opposed to actual operation, can skew arguments and confuse
analysis, but, in principle, are meaningless under the state constitution.
However, their political significance has sometimes led to judicial efforts
for truth in labeling.181 When the focus is on the property moving or being
transformed, for example, there is no constitutionally meaningful distinction between a sales tax on the consumer and a gross receipts tax on the
seller. A franchise can be taxed as a personal estate or as the source of
income. At least when it involves a regulated utility, a tax on even net
income recovered in the rates can be indistinguishable from a sales tax on
the utility‘s consumers. Classification and exemption issues cross all these
lines. The categories nevertheless are a necessary part of the common vocabulary, and they have sometimes shaped the arguments and decisions.
2. The Tobacco Tax, Narrower Classification Permitted
In 1940, Havens v. Attorney General182 opened the modern era by confronting some of these questions. The plaintiff, a tobacconist, challenged
on several constitutional grounds a new 15% tax on retail sales of tobacco.183 The court split three to two, with the majority holding that the law
was ―a sales tax and not an occupation tax.‖184 At the time, a tobacco tax
180. Morrison v. Manchester, 58 N.H. 538 (1879) (mortgagor or mortgagee). Sometimes the payor is
significant for federal constitutional reasons. See, e.g., Ne. Airlines, Inc. v. N.H. Aeronautics Comm‘n,
111 N.H. 5, 273 A.2d 676 (1971) (passenger emplaning fee levied on carrier, not passenger).
181. E.g., Opinion of the Justices, 123 N.H. 349, 357, 461 A.2d 132, 137 (1983) (dissent insisting
that a franchise tax on gross receipts was a sales tax ―to be borne by the consumers‖).
182. 91 N.H. 115, 14 A.2d 636 (1940).
183. Id. at 116–17, 14 A.2d at 637 (examining agricultural exemption, valuation methods, mechanics
of collection, and differential rates between distributors and retailers).
184. Id.
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was considered a revenue matter, not an exercise of the police power to
protect public health.185
Chief Justice Allen dissented, calling the decision ―a revolutionary departure from the views expounded and developed in this State.‖186 The
court‘s prior opinions approving a sales tax were no warrant for a tax on
the sale of a single commodity. The event defining the class was a sale. If
there were to be a tax on some sales but not others, that involved an exemption—an exemption of the kind that required a public purpose sufficient to justify disproportionality.187 ―If out of ten subjects or forms of
property only one is taxed, the others are exempted.‖188 While Chief Justice Allen could conceive of a separate class of luxuries, he could not discern a public interest:
[I]t is not perceived how it can be found to be for the public welfare, in taxing the sale of tobacco products, to exempt the sale of
such articles, for example, as smoking accessories, chewing gum,
playing cards, certain forms of cosmetics, and certain forms of jewelry.189
The Chief Justice argued that the various bases on which the majority permitted separate classification of tobacco sales could be used to selectively
tax nearly any other business selling a particular commodity,190 or further
sub-classify tobacco based on use in cigars, cigarettes, or pipes.191
Although dissenting separately, with additional alternative grounds,
Justice Page agreed that the Chief Justice had articulated ―the judicial
theory of classification consistently held in New Hampshire for over a
hundred years.‖192 ―[A] retail sales tax must operate alike on all retail sales
which cannot be distinguished upon reasonable and just grounds.‖193 Of
185. Id. at 118, 14 A.2d at 638. While restriction of sales to minors was mentioned, all the published
opinions said or assumed the sole purpose of the tax was revenue. Chief Justice Allen‘s dissent did
discuss possible health issues, but only hypothetically, and in a way he found these insufficient to
justify singling out one potentially unhealthy commodity. Id. at 124–26, 14 A.2d 642–43.
186. Id. at 121, 14 A.2d at 640 (Allen, C.J., dissenting).
187. Id. at 121–22, 14 A.2d at 640.
188. Id. at 123, 14 A.2d at 641.
189. Id. at 124, 14 A.2d at 641.
190. Id. at 121–31, 14 A.2d at 640–46.
191. Id. at 130–31, 14 A.2d at 645. The chief justice was prophetic. In 1951 the court was skeptical
of an exemption for cigars, but said a tobacco tax could be levied on cigarettes alone as class, tacitly
exempting all other forms of tobacco. Opinion of the Justices, 97 N.H. 543, 544, 81 A.2d 851, 852
(1951). In 1955 the court advised that to tax cigarettes at 20% and other tobacco products at 15% with
no apparent justification for the difference would be unconstitutional. Opinion of the Justices, 99 N.H.
517, 517–18, 113 A.2d 119, 120 (1955).
192. Havens, 91 N.H. at 131, 14 A.2d at 646 (Page, J., dissenting).
193. Id. at 133, 14 A.2d at 646.
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course, as will appear below, the majority concluded there were reasonable
and just grounds.
The majority declined to survey the slippery slopes posited by Chief
Justice Allen. It considered the issue to be selection, not exemption:
―[T]he essential inquiry would appear to be whether the selection of tobacco as the subject of the tax is so arbitrary and unreasonable as to violate the
legal requirements of classification.‖194 Although not directly citing them,
the court appeared to be invoking opinions reaching back to 1829 recognizing very broad discretion in the legislature to select objects of taxation.195 The one decision actually cited was Town of Canaan v. Enfield
Village Fire District.196
The Canaan decision, along with those cited in support of legislative
discretion in the selection of subjects of taxation, involved only the tax on
estates—the general property tax; the only selectivity involved was whether to include particular kinds of property in the one class then permitted,
with the entire class taxed at one uniform rate and valuation. Selection was
in part necessary—it would be impractical if not impossible to tax all conceivable kinds of property. It also presented little threat of narrowly selective, discriminatory taxation. None of the taxes struck down in the nineteenth century involved including particular categories of property in the
general tax on estates, or excluding them. Each was a special levy with
differing rates, valuations, or exemptions. Until 1903 there was no power
to create ―other classes of property‖ specially defined and taxed at differing
rates and valuations.197 The implications of selection in the latter case for
proportionality, equality, and just shares are manifestly different than when
there was one class and one rate. As later recognized by the court, it was
this new power that entailed the ―danger of creating, by narrow classification, a tax upon occupations or privileges.‖198
The nineteenth-century opinions of the court gave support for both the
majority view and the dissent. The court had treated the legislature‘s decision to put a particular class of property on the taxable list (selection) as
being almost unreviewable:
194. Id. at 117, 14 A.2d at 638 (majority opinion).
195. See, e.g., Opinion of the Court, 4 N.H. 565 (1829). ―The reasons which may justify the use of
the selective power as to the subjects for taxation may be as various as the motives which induce any
rational action.‖ Opinion of the Justices, 82 N.H. 561, 574, 138 A. 284, 291 (1927). A key phrase
from the 1829 opinion regarding the legislature‘s ―wide latitude of discretion‖ was used without citation. Havens, 91 N.H. at 118, 14 A.2d at 638.
196. 74 N.H. 517, 70 A. 250 (1908); see Havens, 91 N.H. at 117, 14 A.2d at 638.
197. See supra note 106 & accompanying text.
198. Opinion of the Justices, 97 N.H. 546, 548, 81 A.2d 853, 855 (1951); see also Opinion of the
Justices, 111 N.H. 131, 135, 276 A.2d 817, 820 (1971) (per curiam).
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Whether the public expense is more justly and wisely divided
by an inevitably unsuccessful effort to tax all property, or by the
taxation of some class or classes of property that can be easily,
equally, and certainly taxed, and the tax of which is equitably collected for the public from all classes of people by the higher government, is not a judicial question. If there is a class of property,
the tax of which, by force of the natural law of tax distribution and
equalization, would be eventually paid in just proportion by the
whole community, the common burden may be wholly put upon
that class. The non-assessment of other classes of property would
not be an exemption of any class of people.199
The court of that era referred to exemption as occurring either by failure to
list property as taxable or by express exceptions for property that was otherwise on the taxable list.200
Some ambiguity seems to have arisen from the fact that both inclusion
(selection) and exclusion (tacit or express exemption) were used to define
taxable ―estates.‖ Under the statutory scheme all real estate was taxed unless expressly exempted,201 but personal property was taxed only if
listed.202 There was also a practical problem with judicial review of any
failure to list a type of personal property. The court could not order a tax
unauthorized by the legislature and would have had to void the entire personal property tax to give a remedy for underinclusion.203 However, ex199. Morrison v. Manchester, 58 N.H. 538, 555–56 (1879) (emphasis added); see also Brewster v.
Hough, 10 N.H. 138 (1839); Opinion of the Court, 4 N.H. at 565. But see Boston, Concord & Montreal
R.R. v. State, 60 N.H. 87 (1880) (conceding differences of opinion on judicial and legislative roles in
achieving constitutionally required equality).
200. ―[T]he legislature may provide, by general laws, for the exemption of certain classes of property
from taxation, as well as exempt it, in fact, by omitting it in the description of property required to be
taxed.‖ Brewster, 10 N.H. at 142. Brewster or decisions echoing it have been cited repeatedly, as
recently as Smith v. N.H. Dep’t of Revenue Admin., 141 N.H. 681, 692 A.2d 486 (1997), and Estate of
Robitaille v. N.H. Dep’t of Revenue Admin., 149 N.H. 595, 827 A.2d 981 (2003). These later decisions
applied the broad language of legislative discretion to classes of dynamic property without noting the
shift in context.
201. As is still the case: ―All real estate, whether improved or unimproved, shall be taxed except as
otherwise provided.‖ N.H. REV. STAT. ANN. § 72:6 (2009).
202. ―[T]he policy of our law has been to tax all real estate and the enumerated personal property.‖
Nashua Sav. Bank v. City of Nashua, 46 N.H. 389, 408 (1886). Thus, the list for personal property
included ―carriages if exceeding fifty dollars in value‖ as a class, not carriages of fifty dollars value or
less as an exemption from a class of personal property or carriages. Id. at 396. At this level there is no
practical significance in the choice of verbal formula. In 1927 the court recognized this and declared
that in either case, the issue was one of exemption, which had to be based on the protective power.
Opinion of the Justices, 82 N.H. 561, 570–71, 138 A. 284, 289 (1927).
203. To do so would violate part I, article 28 of the New Hampshire Constitution. The problem is
best explained in Eyers Woolen Co. v. Gilsum, 84 N.H. 1, 146 A. 511 (1929): ―[I]n matters of taxation
the constitution is not self-executing, . . . legislative authority . . . is required.‖ 84 N.H. at 4, 146 A. at
513; see also Town of Canaan v. Enfield Vill. Fire Dist., 74 N.H. 517, 70 A. 250 (1908).
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press exemptions were often thought of as somehow different.204 They
could be nullified if unconstitutional. They involved differential treatment
of persons or of property that the legislature had already determined was a
suitable subject of taxation—a direct shifting of the burden among taxpayers prima facie situated similarly. ―Every exemption is an indirect tax
upon other property, and can only be justified where a direct tax upon other
property in its behalf would be within the power of the legislature.‖205
The payment of a bounty or subsidy out of the public treasury,
by the protective power, may be made in the form and under the
name of a tax exemption. . . . The generation by whom the constitution was adopted understood the state could pay a sum of money
to an individual, for a public purpose, by exempting him from the
payment of the same amount of tax.206
As expressed in Chief Justice Allen‘s dissent in Havens, ―to aid some . . .
without aiding others can be justified only by a line of distinction based on
a public benefit for those aided not applicable to those not aided.‖207
None of this, even had it been less ambivalent, was of much use to either side in Havens. Whatever approach one took when there was only one
class of taxable ―estate,‖ the problem now was how to define additional,
differing classes. Was the court facing a highly selective, discriminatory
occupational tax, or a simple sales tax on tobacco? And if the latter, could
it, or should it be distinguished, as the court would come to be asked, from
a sales tax on bottled soft drinks,208 apples,209 milk,210 or barber and beauty
services?211
The majority said the view that ―an act of the legislature imposing a
tax should be considered primarily as an exemption statute is believed to
204. State v. U.S. & Canada Express Co., 60 N.H. 219 (1880) (Doe, C.J.) (discussing the subsidy
theory); Franklin St. Soc‘y v. Manchester, 60 N.H. 342 (1880) (stating a partial exemption for religious
property was justified because a direct appropriation would have been permissible). This view was
affirmed in Opinion of the Justices, 82 N.H. 561, 571 (1927), and, although the proper degree of deference to legislative judgment was left obscure, the bases for proposed exemptions were thoroughly
scrutinized.
205. Franklin St. Soc’y, 60 N.H. at 345–46.
206. U.S. & Canada Express Co., 60 N.H. at 259–60 (Doe, C.J.).
207. Havens v. Att‘y Gen., 91 N.H. 115, 127, 14 A.2d 636, 643 (1940) (Allen, C.J., dissenting).
208. Opinion of the Justices, 94 N.H. 506, 52 A.2d 294 (1947) (holding proposed tax at same rate as
tobacco tax constitutional).
209. Opinion of the Justices, 95 N.H. 555, 65 A.2d 876 (1949) (holding apple excise unconstitutional
occupation tax).
210. Opinion of the Justices, 98 N.H. 527, 96 A.2d 733 (1953) (holding milk excise unconstitutional
occupation tax).
211. Opinion of the Justices, 111 N.H. 131, 276 A.2d 817 (1971) (per curiam) (determining array of
service taxes at different rates probably unconstitutional).
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be wholly without foundation.‖212 Unless the word ―primarily‖ was employed to convey an unexplained qualification, the court was mistaken. In
1927 the court had been presented with two possible income taxes, one that
taxed only incomes above $2,000 and one that taxed incomes categorically
but exempted amounts below $2,000.213 Some question was raised about
the difference, but the court dismissed it: ―The terminology used does not
control. The substance of the provision must be considered. The question
is one of power to grant exemption.‖214 Even Chief Justice Doe, who long
before the 1902 amendment believed the taxing power was not limited to
polls and estates, rejected the railway express tax precisely because it was
too narrow:
Whether it is a tax imposed upon person, property, income, business,
gross receipts, profits, or earnings, is immaterial. It is a tax which one
class of men are required to pay, and from which all others are exempt.
It is a perfect example of unequal division of public expense.215
For the proposition that imposition of a tax could not be treated as an
exemption, the majority quoted only a different proposition from the problematic opinion in Canaan:216 ―No case is to be found holding a tax invalid
because of the exemption of other property by either express provision or
failure to enumerate it as taxable.‖217 While literally true in the original
context, that passage in Canaan did not mean that unjustified exemption
could not invalidate a tax. One ground for the unconstitutionality of the
inheritance tax in Curry v. Spencer had been that the state ―cannot lawfully
make discriminations and cast the burden upon one class of beneficiaries,
and exempt all other classes from its operation.‖218 Between Canaan and
Havens the court had twice declared that a general $2,000 exemption from
an income tax would be fatally excessive: ―The duty to contribute to the
maintenance of government is a primary one, the performance of which is
212. Havens, 91 N.H. at 117, 14 A.2d at 638 (majority opinion).
213. Opinion of the Justices, 82 N.H. 561, 570, 138 A. 284, 289 (1927).
214. Id.
215. State v. U.S. & Canada Express Co., 60 N.H. 219, 263 (1880) (emphasis added). Of course,
Chief Justice Doe would have been willing, with evidence of the proper motive, to uphold a tobacco
―tax‖ as a protective power penalty, but that was not the theory in Havens.
216. 74 N.H. 517, 70 A. 250 (1908). Canaan was a case of statutory interpretation involving exemption of property owned by public bodies outside their own boundaries. The principal opinion is a farranging discourse filled with broad propositions on many topics, much of it dicta. As Chief Justice
Allen observed, only two justices of the three who sat joined in the opinion and perhaps only one on the
point cited. Havens, 91 N.H. at 124, 14 A.2d at 641 (Allen, C.J., dissenting). Canaan‘s precedential
value was expressly discounted by a unanimous court in Town of Keene v. Town of Roxbury, 81 N.H.
332, 126 A. 7 (1924). Despite this, it has been cited for one proposition or another by the court at least
forty-three times, and at the time of this writing has no cautionary signal in LexisNexis‘s Shepard‘s.
217. Canaan, 74 N.H. at 540, 70 A. at 259; see also Havens, 91 N.H. at 117, 14 A.2d at 638.
218. 61 N.H. 624, 632 (1882).
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not to be excused for light reasons.‖219 It had also said that leaving corporate income out of a taxed class of business income would be unconstitutional.220
The majority invoked two specific post-1903 classification decisions
involving sub-classification of franchises and incomes. When taxation of
electric and gas utility franchises was challenged for failure to include other utility franchises, the court had said:
The power of the legislature to classify property as taxable or nontaxable is a broad one, and the validity of its exercise has rarely
been called in question. Classification of property by kind has always been recognized as proper. So, too, classification by use is
said to be permissible. So long as there is a reasonable line of demarcation, and there is no attempt to make taxability depend upon
a classification of owners, the legislative power in this matter is
supreme.221
However, Havens appears to have overlooked the fact that the franchise
issue was one of inclusion in, or exclusion from, a statewide tax on estates,
not the creation of a new ―other‖ class of property to be taxed at a different
rate.222 The power to select particular types of property for inclusion in a
general estate tax had long been settled. The power to tax ―[o]ther classes
of property‖ was not based on classification by kind, but ―by some fact
other than mere ownership.‖223 A non-estate tax could be levied on a ―distinctive class of property‖ depending upon ―a certain event . . . a characteristic event, not common to other property.‖224 The Havens majority
quoted this and declared that with ―slight changes in phraseology,‖ it could
be applied to sustain the tobacco sales tax.225 Tobacco was a distinctive
class of property. The characteristic event was a sale. The majority ignored the original qualification that the event not be common to other
property.226
219. Opinion of the Justices, 84 N.H. 559, 571, 149 A. 321, 328 (1930); see also Opinion of the
Justices, 88 N.H. 500, 507, 190 A. 801, 806 (1937) (citing Opinion of the Justices, 84 N.H. at 771, 139
A. at 328).
220. Opinion of the Justices, 84 N.H. at 573, 149 A. at 328.
221. Havens, 91 N.H. at 118, 14 A.2d at 638 (citations omitted).
222. Id. passim; see also 1 COOLEY ON TAXATION § 280 (4th ed. 1924) (1881). General propositions
from a national treatise could not have been applied to New Hampshire when the question involved a
possible occupation or excise tax. New Hampshire was already well recognized as peculiar in its
prohibition of such taxes. See, e.g., State ex rel. Botkin v. Welsh, 251 N.W. 189, 200 (S.D. 1933)
(examining the concept of taxable privilege).
223. Conner v. State, 82 N.H. 127, 128–29, 130 A. 357, 359 (1925).
224. Opinion of the Justices, 84 N.H. at 575, 149 A. at 329 (approving timber severance tax).
225. Havens, 91 N.H. at 119, 12 A.2d at 638.
226. Id.
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The only clear precedent for an arguably under-inclusive tax on a new
class of property was the court‘s treatment of taxes on income. Money at
interest was, of course, property, and the legislature had very broad authority to sub-classify it and subject any or no part of the classes to the general
tax on estates at the common rate.227 In 1915 the court approved a proposal to remove from the taxable list various interest or dividend-bearing
items and levy instead a tax at the common rate on the income they produced.228 The bill explicitly defined such incomes as ―personal estate,‖
and the court upheld it as such, with the understanding that it would be
taxed at the same rate as other property.229 Legislative power to make such
exclusions from and additions to the list of taxable estates could not ―be
regarded as open to investigation.‖230 The court went further in response to
the objection that they had approved an income tax. The proposal remained a tax on ―personal estate.‖231 As such, ―[t]he failure to tax all incomes would not be a constitutional objection. The taxation of a class only
would present the situation of our present tax laws, which do not tax all
classes of property.‖232 Despite the fact that it resulted in different effective tax rates on differently invested ―estates,‖233 the same plan was approved in 1923.234 However, one dissenting justice foresaw hazards in
applying the old concepts of classification and selection to new classes of
property:
[D]isproportion in taxation within the meaning of the constitution
can be accomplished as effectually by taxing a part of a given class
of taxable or non-taxable property and giving it a fictitious name,
as by varying the rules governing the ascertainment of value, or by
varying the rate. There is no limit to the diverse classifications
which might be made once we embark on this method. To adopt
such a method would be . . . an elimination of the word ―proportional‖ from the constitution . . . .235
In Conner v. State, the court upheld the 1923 IDT, using it as the vehicle for announcing its conclusion that the 1903 amendment authorizing
227. Opinion of the Justices, 76 N.H. 609, 612, 85 A. 757, 758 (1913); Opinion of the Justices, 76
N.H. 588, 597, 79 A. 31, 35 (1911).
228. Opinion of the Justices, 77 N.H. 611, 93 A. 311 (1915).
229. Id. at 612–13, 93 A. at 312.
230. Id. at 612, 93 A. at 312.
231. Id. at 615, 93 A. at 313.
232. Id.
233. See Opinion of the Justices, 81 N.H. 552, 560, 120 A. 629, 633 (1923) (Snow, J., dissenting);
Opinion of the Justices, 77 N.H. at 619, 93 A. at 315 (Peaslee, J., dissenting).
234. Opinion of the Justices, 81 N.H. at 553–54, 120 A. at 630 (majority opinion).
235. Id. at 562–63, 120 A. at 634 (Snow, J., dissenting).
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285
taxation of ―other classes of property‖ permitted what had previously been
considered double taxation.236 The Havens majority conceded that no issue
involving the breadth of the class was raised.237 The Conner opinion recognized that other questions about the new theory were likely to arise and
declined to explore them.238 However, the court had approved treating
income as a new class of property and upheld a tax applicable to only certain types of income. It has repeatedly done so since, approving differential taxation of an extraordinary of variety sub-classifications of gross, net,
or blended incomes.239
However, Havens involved only one type of tax at one rate on the
movement of one kind of property.240 Taxonomical complexities would
arise after the attempt to settle whether a class was defined by the ―characteristic event‖ or a combination of the event with other factors. In Havens
the court tacitly repudiated the position it had taken in 1930 and decided
that, at least in some cases, factors other than the characteristic event could
justify separately classifying and taxing only some of the property subject
to the event.241
Although unwilling to treat the allegedly narrow classification as a
type of exemption, the majority also declined to treat the definition of
―other classes of property‖ as unreviewable in the way it had been for personal estates. The majority offered some criteria for determining ―the legal
requirements of classification.‖242 In addition to the characteristic eventtriggering incidence of the tax, the levy was on a commodity distinguished
by a restriction on sales or gifts to minors, one ―so distinctively in a class
of its own that it is generally considered by economists as an appropriate
236. 82 N.H. 126, 130 A. 357 (1925).
237. Havens v. Att‘y Gen., 91 N.H. 115, 117, 14 A.2d 636, 638 (1940).
238. Conner, 82 N.H. at 133, 130 A. at 361.
239. Opinion of the Justices, 132 N.H. 777, 584 A.2d 1342 (1990) (net business profits plus compensation; scheme unconstitutional on other grounds); Opinion of the Justices, 123 N.H. 349, 461 A.2d
132 (1983) (gross receipts of franchised utilities); Opinion of the Justices, 117 N.H. 512, 374 A.2d 964
(1977) (capital gains); Austin v. State Tax Comm‘n, 114 N.H. 137, 316 A.2d 165 (1974) (N.H. wages
of non-residents), rev’d on other grounds, Austin v. New Hampshire, 420 U.S. 656 (1975); Opinion of
the Justices, 110 N.H. 117, 262 A.2d 290 (1970) (net business profits); Opinion of the Justices, 101
N.H. 549, 137 A.2d 726 (1958) (income from exercise of utility franchises); Opinion of the Justices, 97
N.H. 543, 81 A.2d 853 (1951) (income from sale of stock in trade by merchants and manufacturers);
Opinion of the Justices, 95 N.H. 537, 65 A.2d 876 (1949) (gross incomes a proper class, specific proposal invalid for lack of uniform rate); Opinion of the Justices, 88 N.H. 500, 190 A. 801 (1937) (earned
incomes and rents); Opinion of the Justices, 84 N.H. 559, 149 A. 321 (1930) (earned incomes and
income from intangibles); Opinion of the Justices, 82 N.H. 561, 138 A. 284 (1927) (net incomes from
manufacturing and mercantile business).
240. Havens, 91 N.H. at 119, 14 A.2d at 639 (involving one express exemption for agricultural uses
that would meet any of the extant tests for exemption).
241. Id. at 118–19, 14 A.2d at 638–39 (examining Opinion of the Justices, 84 N.H. at 576, 149 A. at
330 (1930)).
242. Havens, 91 N.H. at 117, 14 A.2d at 638.
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subject of taxation.‖243 Its sale was distinct from ―the ordinary transactions
of private life which contain no element subject to supervision either under
the police power or as things affected with a public use.‖244 It was not a
necessity.245
As bulwarks against discriminatory taxation, these distinctions were
hardly formidable. Chief Justice Allen‘s dissent observed that a justification for regulatory exercise of the police power bore no logical connection
to an exercise of the taxing power, and that such a basis for classification
would leave ―any selection . . . just and reasonable and the legislative will .
. . uncontrolled.‖246 ―[A] law taxing only bread . . . would not be validated
by including in the law requirements for the weight and quality of the
bread.‖247 He could have pointed to special regulation of many other
commodities, including milk,248 and many common activities, including
hunting and fishing.249 Other commodities were dangerous and subject to
sales restrictions.250 The opinions of economists were a poor guide for the
court—they generally also supported constitutionally forbidden progressivity.251
Although the Chief Justice was merely dismissive, the criterion of economic theory was manifestly unsound. Economic writing about state taxation presupposes the nearly universal power to levy excises, grounded in a
power to declare any occupation ―a privilege and tax it as such.‖252 It takes
for granted the very authority New Hampshire‘s founders withheld. As
observed in one of the opinions cited by the Havens majority itself, ―the
taxing power is fixed by the language of the amendment and not by a classification of taxes by authorities on economics.‖253
243. Id. at 118, 14 A.2d at 638.
244. Id. Had medical science been sufficiently advanced, the court could have followed Chief Justice
Doe‘s robust view of protective power penalties rather than make vague references to supervision. See
State v. U.S. & Canada Express Co., 60 N.H. 219, 257 (1880).
245. Havens, 91 N.H. at 119, 14 A.2d at 639.
246. Id. at 124, 14 A.2d at 642 (Allen, C.J., dissenting).
247. Id. at 126, 14 A.2d at 643; see also State v. Normand, 76 N.H. 541, 85 A. 899 (1913) (upholding
state board of health‘s bread-wrapping requirement).
248. Opinion of the Justices, 88 N.H. 497, 190 A. 713 (1937) (quality and price regulation).
249. Musgrove v. Parker, 84 N.H. 550, 153 A. 320 (1931) (regulations restricting taking of fish and
game).
250. Havens, 91 N.H. at 125, 14 A.2d at 642 (Allen, C.J., dissenting) (―poisons, intoxicants, certain
weapons‖).
251. Id. at 122, 14 A.2d at 640.
252. Seven Springs Water Co. v. Kennedy, 299 S.W. 792, 793 (Tenn. 1927). For New Hampshire‘s
peculiarity, see also State ex rel Botkin v. Welsh, 251 N.W. 189, 200 (S.D. 1933). Even Professor
Robinson‘s A History of Taxation in New Hampshire glosses over this critical distinction.
253. Opinion of the Justices, 84 N.H. 559, 576, 149 A. 321, 330 (1930).
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Subsequent decisions reveal that the listed distinctions in Havens have
been neither necessary nor sufficient to define a distinctive ―other class‖ of
property separately from the ―characteristic event.‖
3. Developments by Type of Tax
a. Other Sales and Commodity Taxes
Questions remained about what sales of other commodities might be
classified and whether tax rates could vary among them. In 1947 the advice of the court was sought regarding a tax proposed on the sale of bottled
soft drinks.254 The sponsors had cautiously proposed the same 15% levy
and valuation method as the tobacco tax,255 so any issue was confined to
classification. The court said the tax was on a distinctive class of property,
depending on a characteristic event, a sale. There was no reference to the
police power. Instead, the court relied on other
abundant reasons. Soft drinks, like tobacco, are not necessaries,
but may be properly classified as luxuries which were recognized
by the dissenting judges in Havens v. Attorney General, as proper
subjects for taxation. Their fitness as subjects of taxation has been
generally recognized. Similar taxes have been imposed in many of
the states. The fact that this burden of the tax will be very widely
distributed over almost the entire population of the state indicates
that it is a good tax, according to accepted theories of taxation.
The incidence of the tax depends upon a characteristic event, a
sale, which has been held to a proper criterion for determining the
incidence of a tax.256
Two years later the same justices peremptorily condemned conversion
of the electric utility franchise tax to one on kilowatt-hours of electricity
produced, since it would have been a ―privilege tax.‖257 Although the levy
might not have been strictly ad valorem,258 that seems to have been beside
254. Opinion of the Justices, 94 N.H. 506, 52 A.2d 294 (1947).
255. ―The original copy of HB from the 1947 NH legislative session, section 5 ‗Tax Imposed‘, reads
‗A tax is hereby imposed at the rate of fifteen percent upon the value of all bottled soft drinks sold at
retail in this state measured by the usual selling price.‘‖ Letter from Z. Moore, Reference Librarian,
N.H. State Library, to Marcus Hurn, Professor, Franklin Pierce Law Center (Feb. 9, 2009) (on file with
author).
256. Opinion of the Justices, 94 N.H. at 508, 52 A.2d at 295.
257. Opinion of the Justices, 95 N.H. 543, 543, 64 A.2d 324, 324 (1949).
258. The levy was 1/4 mill per kilowatt hour. Although the value of electricity in principle varies
depending on when it is produced and consumed, a flat rate has been levied on consumption for some
years without challenge. N.H. REV. STAT. ANN. § 83-E:2 (2008) (adopted in 1997). Even if kilowatt
hours were not of equal value, an ad valorem tax on their sale could easily have been devised. Alterna-
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the point at the time. It is hard to avoid the conclusion that the briefs and
arguments failed to reveal an attempted and salvageable sales or gross income tax behind all the references to franchises and privileges.259 Some
years later, the court used the flat rate distinction to ―harmonize‖ this decision with its approval of a proposed conversion of the tax on a franchise as
property to a tax on income generated by a franchise.260 Many years later
the court approved such a tax on the gross receipts of electric and gas utilities, essentially a ―sales tax on the consumption of electricity and gas.‖261
The same year a proposed tax on apples ―moving into the channels of
commerce‖ was rejected as a forbidden ―occupation tax‖:262
The raising and selling of apples involves ―only the ordinary transactions of private life.‖ It contains ―no element subject to supervision either under the police power or as things affected with a public use.‖ ―The mere statement of the general proposition is sufficient to show that it unquestionably exceeds the legislative power.‖263
As drafted the tax had a structural flaw (flat rate again), but the court ignored that.264 That the proceeds of the apple levy were devoted to promoting the sale and use of apples did not enter into the analysis.265 An effort
similar to the apple excise regarding milk distribution in 1953 failed as
either a tax or a fee.266 No mention was made in either the electric franchise or milk distribution cases of the unique and elaborate police power
regulations and price controls to which those industries were subject.267
Contrary to its practice in some cases,268 the court made no effort to advise
tively, the tobacco tax had reached an essentially flat rate per pack without violating valuation principles. Havens v. Att‘y Gen., 91 N.H. 115, 135–36, 14 A.2d 636, 648 (1940) (Page, J., dissenting)
(explaining the mechanism resulting in a flat tax).
259. There is now a consumption tax. See N.H. REV. STAT. ANN. 83-E:2 (2008).
260. Opinion of the Justices, 101 N.H. 549, 137 A.2d 726 (1958).
261. Opinion of the Justices, 123 N.H. 349, 358, 461 A.2d 132, 137 (1983) (per curiam).
262. Opinion of the Justices, 95 N.H. 555, 556, 65 A.2d 876, 877 (1949).
263. Id. (quoting Opinion of the Justices, 82 N.H. 561, 563, 138 A. 284, 286 (1927)).
264. The apple tax was one cent per bushel.
265. Either a fee theory or a special benefit assessment theory might have had some merit. In a
subsequent, more thorough analysis of a similar charge on milk distributors, the court held that establishing a fund for advertising and ―stimulating milk consumption is not in aid of regulation as the
definition is understood,‖ although promotion of the sale of milk was ―not of itself an invalid purpose.‖
Opinion of the Justices, 98 N.H. 527, 528–29, 96 A.2d 733, 734 (1953).
266. Id., 96 A.2d at 735.
267. See generally Opinion of the Justices, 88 N.H. 497, 190 A. 713 (1937) (discussing milk dealer
licensing and price control system).
268. The principal decision cited by the court had included an elaborate suggestion regarding how
revenue could be raised from corporations without unconstitutional discrimination. Opinion of the
Justices, 82 N.H. at 566, 138 A. at 287. Finding a proposal to exempt cigars from the tobacco tax of
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the legislature how it could lawfully achieve its purposes in any of these
decisions. The criteria laid out in Havens and supplemented in the soft
drinks decision were not used in the kilowatt, apple, or milk opinions.
In 1951, confronting proposed sales taxes at differing rates on a miscellaneous assortment of goods and services, the court had to reconcile its
expansive language in the tobacco and soft drinks opinions with its duty to
the constitution. Leaving tobacco at 15%, the bill would have taxed restaurant meals at five, soft drinks at twenty, and admissions at five. 269 The
court maintained its view that tobacco was in a class by itself, and expressly stated it could be taxed ―at a rate distinct from the rate of a general sales
tax.‖270 This was a bit awkward without resort to stronger justifications
than laid down in Havens. Just the week before—in the immediately preceding opinion in the official reports—the court had insisted that all incomes were one class and that intangibles and income from mercantile and
manufacturing had to be taxed at one rate.271 No attempt was made to reconcile the differing approaches to classification.
On ―the issue of still further classification,‖ the court hypothesized justifiable distinctions based on various differences—sales of real property
versus personal, of luxuries versus necessities.272 It wrote of permitted
disproportion ―inherent in the tax itself,‖273 but cautioned against failure
[t]o promote ―equal or honest division of [the] common burden.‖
The danger of creating, by narrow classification, a tax upon occupations or privileges is apparent. ―Under our constitution, the
power to tax is a power not to destroy the right of property by a
discriminating process of classification or selection, but to equitably defray the expense of protecting the right of property and other
rights.‖274
Referring to the ―complexities of the subject‖ and the limited time
available for answering the inquiry, the court expressed its ―tentative conclusion‖ on the limited information before them.275 The justices were ―unable to declare the proposed bill constitutional.‖276 When it was proposed
to tax cigarettes at 20% and other tobacco products at fifteen, the court saw
doubtful constitutionality, the court suggested simply narrowing the taxable class to cigarettes. Opinion of the Justices, 97 N.H. 543, 81 A.2d 851 (1951).
269. Opinion of the Justices, 97 N.H. 546, 547, 81 A.2d 853, 854 (1951).
270. Id.
271. Opinion of the Justices, 97 N.H. at 545, 81 A.2d at 853.
272. Opinion of the Justices, 97 N.H. at 547–48, 81 A.2d at 854.
273. Id. at 548, 81 A.2d at 854.
274. Id. (citations omitted).
275. Id.
276. Id.
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no ―regulatory or just reason‖ for the difference and declared it unconstitutional.277 A 1971 proposal would have taxed another assortment of services at a different rate from that on rooms and meals.278 The court still left
open the possibility of information not before them justifying subclassification, but
[a]lthough they may exist, no reasons have been presented to us
―which may fairly be thought just and in the public interest‖ for the
selection of the services taxed by RSA ch. 78-A (supp.) for taxation at one rate, and those enumerated in House Bill 382 for taxation at another.279
There was one class, not two. While each activity in the two classes presumably had ―some unique trait,‖ the ―‗characteristic event‘ which justifies
imposition of a tax differing from the general property tax is the same—
namely, the furnishing or sale of a service.‖280 Without equalizing the rates
the bill would be unconstitutional. With a uniform rate it could stand.281
Tobacco was special—the default position is apparently ―a general sales
tax‖ at one rate.282
In contrast to the tobacco and soft drinks decisions, these later opinions
warning of the dangers of narrow classification have no judicial elaboration of distinctions justifying the classifications in issue. The court has
clearly applied the Havens criteria to goods and services in only two later
cases: once to justify narrowing the class of taxable tobacco to cigarettes,283 and once to validate a proposed tax on production of refined petroleum products.284 Since then the court has apparently forsaken any effort to comprehensively define ―the legal requirements of classification.‖
Instead it has fallen back on more general language like that in the soft
drinks opinion requiring ―reasons which may fairly be thought just and in
the public interest‖ for selecting goods and services to be taxed at different
rates.285
277. Opinion of the Justices, 99 N.H. 517, 518, 113 A.2d 119, 120 (1955).
278. Opinion of the Justices, 111 N.H. 131, 276 A.2d 817 (1971).
279. Id. at 135, 276 A.2d at 820 (citations omitted).
280. Id. at 134, 276 A.2d at 820 (citations omitted).
281. Id. at 135, 276 A.2d at 820.
282. Opinion of the Justices, 97 N.H. 546, 547, 81 A.2d 853, 854 (1951).
283. Opinion of the Justices, 97 N.H. 543, 81 A.2d 851 (1951).
284. Opinion of the Justices, 114 N.H. 174, 317 A.2d 568 (1974).
285. Opinion of the Justices, 94 N.H. 506, 509, 52 A.2d 294, 296 (1947); see also Starr v. Governor,
148 N.H. 72, 802 A.2d 1227 (2002) (finding ―[n]o legitimate reason . . . presented to create . . . distinction‖ between ordinary retail sales of items and sale through prison commissary); Cagan‘s, Inc. v. N.H.
Dep‘t of Revenue Admin., 126 N.H. 239, 490 A.2d 1354 (1985) (stating no ―just reason‖ or ―rational
basis‖ to distinguish sales of packaged food through vending machines or supermarkets).
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b. Taxes on Incomes or Expenses
As noted above, the court had approved taxes on various classes of income some years before Havens.286 It did not have to confront two different classes of income taxed at two different rates. It had, however, said
that the rate for taxation of incomes ―must be uniform.‖287
In 1949 the court‘s advice was sought on a proposal to tax gross incomes.288 The House of Representatives described it as ―classifying gross
income with regard to its type, rather than with regard to its recipient.‖289
The court rejected varying rates for the ―types‖ of income:
A gross income tax does not differ from a net income tax with respect to the constitutional requirements. Either form of income
constitutes a class of property taxable under the 1903 amendment
to our Constitution. They are what is sometimes called property in
motion as distinct from static property. Both classes are subject,
however, to the constitutional requirement of proportionality or
equality of rate within each class.290
On the same day, in response to a net income tax proposal, the court
approved defining net income with reference to the U.S. Internal Revenue
Code, observing that it would ―greatly facilitate the administration of the
act.‖291 Later it made clear that a tax could be levied as a percentage of
federally defined income, but not as a percentage of federal taxes. To do
so would introduce unconstitutional graduation.292
When it was first proposed to except the stock in trade of merchants
and manufacturers from taxable personal estate and replace it with a tax on
their net income, the court reaffirmed its previous approval of such reclassifications.293 However it also reaffirmed its position that all income taxes
―constitute one class for purpose of establishing a rate,‖ expressly stating
286. Opinion of the Justices, 88 N.H. 500, 190 A. 801 (1937) (earned incomes and rents); Opinion of
the Justices, 84 N.H. 559, 149 A. 334 (1930) (earned incomes and income from intangibles); Opinion
of the Justices, 82 N.H. 561, 138 A. 284 (1927) (net incomes from manufacturing and mercantile
business).
287. Opinion of the Justices, 82 N.H. at 570, 138 A. at 289; accord Opinion of the Justices, 84 N.H.
559, 149 A. 334.
288. Opinion of the Justices, 95 N.H. 537, 64 A.2d 320 (1949).
289. Id. at 538, 64 A.2d at 320.
290. Id. at 539, 64 A.2d at 321 (emphasis added).
291. Opinion of the Justices, 95 N.H. 540, 542, 64 A.2d 322, 323 (1949). Once business profits came
to be taxed, reference to the federal code and forms required considerable adjustment due to varying
federal treatment of business entities, a practice unconstitutional in New Hampshire.
292. Opinion of the Justices, 99 N.H. 525, 113 A.2d 547 (1955).
293. Opinion of the Justices, 97 N.H. 543, 81 A.2d 851 (1951).
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the same rate would apply to the tax on intangibles, namely interest and
dividends.294
The first opinion approving taxation of one type of income at a special
rate came in 1958.295 The previous year the court had held the public utility franchise tax unconstitutional.296 It had been a traditional property tax
on the intangible value of the franchise as measured by the difference between the value of the utility as a whole, based on capitalization of earnings, and its net assets.297 The earnings part of the statutory formula was
irrational and had long notoriously been ―a farce.‖298
Facing budgetary shortfall and the need for a special legislative session, the governor and executive council asked the court for comprehensive advice about utility taxation.299 As a franchise was personal property,
it could be taxed as ―estate,‖300 but that meant it would have to be taxed at
the same rate and valuation as other property taxes at the state level (principally the railroad tax).301 The statutory formula producing a differing
valuation had therefore been unconstitutional. However, franchises had
been one of the two examples of ―other classes of property‖ listed in the
1903 amendment, and incomes were also a recognized ―other class.‖
Therefore it was the court‘s
opinion that franchises of utilities may properly be taxed at a special rate, distinct from that imposed upon incomes, or inheritances,
or by the general property tax. We see no reason why such a special tax upon utility franchises may not validly be imposed by reason of the receipt of income from the exercise of such franchises,
or why it may not be levied at a special rate, and in proportion to
the amount of income received through exercise of the franchises.302
The court was still speaking in terms of classes of taxes so it had a choice
to make: income, franchise, or both. It said, ―uniformity and proportionality must be maintained within this separate class of franchise taxes.‖303 As
294. Id. at 545, 81 A.2d at 853; see also Opinion of the Justices, 99 N.H. 512, 513–14, 112 A.2d 44,
45–46 (1955) (recapitulating the decisions that permitted the rate of income taxes to differ from the rate
for ―the annual property taxes,‖ but requiring them to have their own ―common and uniform rate‖).
295. Opinion of the Justices, 101 N.H. 549, 137 A.2d 726 (1958).
296. Public Serv. Co. of N.H. v. State, 101 N.H. 154, 136 A.2d 600 (1957).
297. Id. at 158–59, 136 A.2d at 604.
298. Id. at 162, 136 A.2d at 607 (quoting a former chairman of the Tax Commission).
299. Opinion of the Justices, 101 N.H. at 551, 137 A.2d at 728.
300. Id. at 556, 137 A.2d at 731.
301. Id. at 554–55, 137 A.2d at 730.
302. Id. at 557, 137 A.2d at 732.
303. Id.
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with other classes, this one need not be comprehensive—inclusion of other
income-generating franchises was not required.304
But the court considered the issue of a rate differing from the IDT ―difficult.‖305 The rates could differ if the franchise tax were levied on net
income, as the intangibles tax was on the gross. That gross and net income
were different classes had already been stated in the abstract.306 Yet, without regard to gross or net, the court also said that franchise income could
be separately classified, and ―[t]he class so selected is as distinctive as that
of the class upon which the tax upon interest and dividends is imposed.‖307
The tax had characteristics of both classes, and the distinctive qualities of
the franchises justified a different rate on the incomes.
There was another proposal in 1965 to repeal the troublesome stock in
trade tax and replace it with an income tax at a uniform rate.308 It had one
easily corrected flaw—a portion was characterized literally as a property
tax, a misnomer that would have been fatal for lack of coordination with
the other state property taxes.309 More seriously, however, the tax would
not apply to income from personal services ―for which wages or salaries
are received from an employer.‖310 Consequently the self-employed would
pay the tax, while those doing the same work but drawing a salary from a
corporation would not. This not only made the tax easily circumvented; it
was an unconstitutional discrimination among taxpayers.311 Coordinating
the deductibility of compensation among various business forms has been a
recurrent design problem in New Hampshire taxation as the state has increasingly relied on definitions from a federal internal revenue code that
promiscuously discriminates among taxpayers.
In 1969 a legislatively created Citizens Task Force worked out a
―Grand Bargain‖ to thoroughly revise the state‘s revenue structure.312 The
tax on stock in trade and many other business-related classes of personal
property would be repealed.313 A tax on the net profits of any corporation,
partnership, or proprietorship would take its place, with revenue sharing
compensation provided to cities and towns to reduce their tax bases.314
Definitions were based on the federal internal revenue code, but unincor304. Id. at 558, 137 A.2d at 732. The court cited Opinion of the Justices, 84 N.H. 559, 149 A. 321
(1930), which turned on the selective power as applied to taxation of franchises as personal estate.
305. Opinion of the Justices, 101 N.H. at 558, 137 A.2d at 733.
306. Opinion of the Justices, 95 N.H. 537, 539, 64 A.2d 320, 321 (1949).
307. Opinion of the Justices, 101 N.H. at 558, 137 A.2d at 733.
308. Opinion of the Justices, 106 N.H. 202, 208 A.2d 458 (1965).
309. Id. at 204, 208 A.2d at 460.
310. Id. at 206, 208 A.2d at 461.
311. Id., 208 A.2d at 462.
312. Opinion of the Justices, 110 N.H. 117, 262 A.2d 290 (1970) (per curiam).
313. Id. at 12122, 262 A.2d at 29394.
314. Id.
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porated entities were allowed a state deduction for the value of owners‘
services to equalize the treatment of all business forms. State credits or
exclusions were designed to avoid possible double taxation where taxes on
other revenue streams overlapped with business profits. In anticipation of
a special legislative session, the governor and council asked the court‘s
advice on the constitutionality of the proposal; the court saw no constitutional flaws.315 This was the genesis of the business profits tax (BPT).
In its scrutiny of the proposed BPT, the court had to distinguish other
classes of property taxed differently or implicitly created where the BPT
base overlapped them. The IDT rate could differ as it was levied on gross
income. To the extent interest and dividends were taxed under the IDT,
that income was excluded from the BPT base. This, however, had the effect of denying businesses the benefit of certain exemptions allowed under
the IDT and also of creating a different effective rate for some intangible
business income. However, the court said business income could be ―classified separately from salaries, wages, and unearned income of individuals,‖ and taxed at a rate differing from intangibles ―held to the accounts of
nonbusiness interests.‖316 As to the better rate for business income from
intangibles, the court characterized it as a rational ―partial exemption‖ to
avoid discouraging investments.317
The state taxes on railroads and telephone companies were traditional
property taxes that did not need to be coordinated with an income tax. The
taxes on gas and electric franchise income were of a distinct class justifying a different rate, and making their higher taxes a credit against the BPT
prevented double taxation.318 The tax on interest and dividends paid out by
banks was called a franchise tax and remained in a class by itself.319 Taxes
on insurance companies were distinguished on the traditional theory that
they were not taxes but voluntary payments for special privileges.320
At about the same time it was signaling that sales of ordinary goods
and services might fit in only one or two classes, each with a common
rate,321 the court was allowing a profusion of distinct categories of income:
gross or net; business receipts, wages and salaries, or unearned income; of
the latter, rents or interest and dividends; franchise income with subclasses of franchises. More distinct classes were to come (presumably subdivisible by other recognized factors): earnings of non-resident commu315. Id. at 125, 262 A.2d at 296.
316. Id. at 123, 262 A.2d at 295.
317. Id. at 124, 262 A.2d at 296.
318. Id., 262 A.2d at 295.
319. Id., 262 A.2d at 296.
320. Id.
321. Opinion of the Justices, 111 N.H. 131, 134, 276 A.2d 817, 820 (1971) (per curiam) (―[T]he
‗characteristic event‘ . . . is the same—namely, the furnishing or sale of a service.‖).
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ters;322 capital gains, both ordinary and from residences;323 interest and
dividends paid by domestic financial institutions;324 and net business profits with compensation added back.325 Double taxation issues and the complexities of taxing multi-state or international business groups have also
produced many credits and exemptions sometimes indifferently referred to
as acts of classification.326 Except for franchised utilities, however, the
court was skeptical of classification of income by industry. In 1975 it was
proposed to exclude from the reach of the business profits tax net income
derived from sales of spirits and wine ―under the express direction of, or
under an agreement with, the State liquor commission for sale to the commission.‖327 With no apparent irony, the court said:
If the effect of the proposal is to exempt certain taxpayers, i.e.
those who sell ―spirits and wines‖ to the State liquor commission,
from this State‘s general business profits tax, it is unconstitutional.
If, however, Senate bill No. 138 merely classifies net income from
the sale of ―spirits and wines‖ to the State liquor commission as
property exempt from taxation and if a ―just reason‖ can be found
for doing so, it is constitutional.328
The justices indulged in no speculation about possible ―just reasons‖ and
said no more.
A separate corporate income tax remained forbidden.329 However, the
BPT‘s necessary allowance of a reasonable compensation deduction for
working owners of unincorporated businesses meant that many small businesses, particularly professional and other service businesses, paid little or
no tax. The narrow incidence of the BPT in practice and its volatility in
relation to the business cycle led to repeated efforts to find a way to reach
more businesses that was both politically viable and constitutional.330
In 1981 the legislature created a complicated minimum business tax of
$250 on any business with gross income over $12,000 and insufficient
322. Austin v. State Tax Comm‘n, 114 N.H. 137, 316 A.2d 165 (1974), rev’d, Austin v. New Hampshire, 420 U.S. 656 (1975).
323. Opinion of the Justices, 117 N.H. 512, 374 A.2d 964 (1977).
324. Smith v. N.H. Dep‘t of Revenue Admin., 141 N.H. 681, 692 A.2d 486 (1997).
325. Opinion of the Justices, 132 N.H. 777, 584 A.2d 1342 (1990) (neither net nor gross).
326. For example, see the difficulties with the Water‘s Edge Taxation Bill reviewed in Opinion of the
Justices, 128 N.H. 1, 509 A.2d 734 (1986). Part II.D.4.a, infra, discusses double taxation.
327. Opinion of the Justices, 115 N.H. 306, 308, 339 A.2d 450, 451 (1975) (per curiam).
328. Id. at 309, 339 A.2d at 452 (citations omitted).
329. Opinion of the Justices, 111 N.H. 206, 278 A.2d 348 (1971) (per curiam). This opinion repudiated, sub silentio, a bizarre advisory opinion delivered earlier that year approving a corporate net
income tax in Opinion of the Justices, 111 N.H. 129, 276 A.2d 489 (1971) (per curiam).
330. See, e.g., Opinion of the Justices, 123 N.H. 296, 460 A.2d 93 (1983) (per curiam) (examining
the request of the House of Representatives).
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profit to trigger the BPT.331 Applying a flat rate to varying income necessarily produces effective rates that are regressively graduated.332 Despite
an effort to distinguish between gross and net, the formula reached the
same income—the purported classes were indistinguishable.333 From a
different perspective, there was no ―just reason‖ to tax income below the
BPT threshold at a higher rate that that above.334 The tax was void ab initio and refunds were due.335 Further experiments in this direction were
pre-tested through advisory opinions.
The next effort was to define two classes of business profits, one
broadly defined and taxed at 1%, the other the existing BPT class, then
taxed at 8.75%. They were to be alternatives, a business being required to
pay whichever was greater.336 The court saw both as ―essentially classifications of business income.‖337 Therefore, there was one class of property
taxed at two different rates. What really was going on was a classification
of taxpayers, not property. However laudable its motive, the legislature
―may not create alternative systems of taxation which inevitably result in
two classes of taxpayers, paying differing rates of tax on essentially the
same class of property, business income.‖338 In the same opinion the court
approved a proposal to reconfigure the BPT by adding back all compensation paid, granting a uniform $25,000 deduction for all entities, and taxing
at a lower rate.339 While constitutional, it was not politically successful.
Later that month the court advised on another two-class proposal under
which tax paid at a low rate on the more broadly defined base could be
taken as a credit against the BPT.340 Because the court still saw the two
classes as essentially the same, differential rates doomed the proposal. 341
The idea of two layers with a credit however, was itself viable and ultimately produced the solution. The court simply required that the broader
low rate tax be on a clearly different class of property such as, it suggested,
331. Johnson & Porter Realty Co. v. Comm‘r of Revenue Admin., 122 N.H. 696, 448 A.2d 435
(1982).
332. Id. at 698, 448 A.2d at 436.
333. Id.
334. Id. at 699, 448 A.2d at 436.
335. Id.
336. Opinion of the Justices, 123 N.H. 296, 460 A.2d 93 (1983) (per curiam).
337. Id. at 301, 460 A.2d at 97.
338. Id. at 302, 460 A.2d at 97. There was another flaw in the class of alternate business profits.
Taxpayers were given a choice of two different adjustment systems, which also had the effect of classifying taxpayers. Id. at 300, 460 A.2d at 96.
339. Id. at 304–08, 460 A.2d at 98–102.
340. Opinion of the Justices, 123 N.H. 344, 461 A.2d 129 (1983) (per curiam).
341. Id. at 347, 461 A.2d at 130.
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compensation or payroll.342 There was another decade of false starts before
the legislature took this advice.
One idea was to cap BPT compensation deductions at $100,000 per
employee. ―The effect . . . would be to impose differing tax burdens and
differing [effective] tax rates on business organizations which have identical gross income and aggregate reasonable compensation expenses.‖343
Those with any employees paid more than the cap would, to that extent,
pay tax at a higher rate than others. This ―would violate the constitutional
principle that the legislature must substantially treat all business entities
uniformly and equally.‖344 Repealing all the compensation deductions and
replacing them with a flat credit per worker (pro-rated for part-timers under 1,800 hours per year) was seen as having the same flaw.345 The court
declared the credit proposal unconstitutional despite a stated purpose to
encourage employment.346 As employment is a recognized public purpose
justifying tax exemptions,347 this seems to have been a misstep by the
court. Alternatively, the court may have concluded that other motives and
likely practical effects outweighed that recital. It is in any case hard to
reconcile with the ―rational basis‖ analysis that the court was applying in
other tax classification cases.348
The solution suggested by the court in 1983 was adopted in 1993 with
the business enterprise tax (BET). Instead of some variation of business
income, the BET base is roughly business expenses. It is the sum of compensation, interest, or dividends paid out—the cost of labor and most capital.349 It comes out of the third part of the income equation (gross minus
cost equals net), manifestly a different class of property in motion. Levied
at a low rate and credited against the BPT, the BET can reach all operating
businesses. Those operating at no or low BPT net because of compensation paid to owners now contribute to state revenues. What the constitution prohibited in one tax was, through deft use of the classification power,
possible with two coordinated taxes.
342. Id. at 348, 461 A.2d at 131.
343. Opinion of the Justices, 131 N.H. 640, 643, 557 A.2d 273, 275 (1989) (per curiam).
344. Id. (citations omitted).
345. Opinion of the Justices, 132 N.H. 777, 783, 584 A.2d 1342, 1347 (1990) (per curiam).
346. Id. at 779, 584 A.2d at 1343.
347. See, e.g., Opinion of the Justices, 111 N.H. 199, 278 A.2d 357 (1971) (per curiam); see also
N.H. REV. STAT. ANN. § 77-A:5, VII (2008) (five-year job creation credit against BPT).
348. E.g., Cagan‘s, Inc. v. N.H. Dep‘t of Revenue Admin., 126 N.H. 239, 490 A.2d 1354 (1985).
349. N.H. REV. STAT. ANN. § 77-E:1, IX. The cost of capital in the form of intellectual property is
not taxed—royalties are not included in the base.
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c. Franchises
Much of this ground has already been covered. It has long been settled
that franchises are intangible personal property, taxable ad valorem.350 The
legislature may tax some franchises and not others.351 So long as they were
so taxed, it was done at the common rate.352 Franchises are also listed in
the 1903 amendment among ―other classes of property.‖ However, in the
modern era the court ruled that when they are taxed directly as property,
the common rate is required,353 as is a rational valuation formula.354
Income from franchises can be taxed as a class of dynamic property.355
When it is, it may be taxed at a rate differing from other income taxes.356
However, if the tax is on income, it must be income actually received and
rationally defined.357
d. Property Taxes
The modern history of traditional property taxes, the ancient tax on
―estates,‖ does not involve constitutional issues directly. The nineteenthcentury decisions on proportionality remain sound. All estates in a given
taxing jurisdiction are to be taxed at a uniform rate and valuation. If, despite the statutory command to appraise property at full value, a different
proportion in fact prevails, the constitutional proportionality rule controls.
It is neither necessary nor sufficient to show flawed assessment methodology—―disproportionality, and not methodology, is the linchpin.‖358 To
secure abatement, the taxpayer must show his appraisal is above the average of other property in the taxing district.359 When differing types of
property in the base are generally assessed at differing proportions of value, a taxpayer need not compare subclasses—the ratio of full value of all
district property to the total of assessed values is the test.360 There is one
350. Opinion of the Justices, 84 N.H. 559, 149 A. 321 (1930); Opinion of the Justices, 82 N.H. 561,
138 A. 284 (1927).
351. Opinion of the Justices, 84 N.H. at 569, 149 A. at 326.
352. Id.
353. Opinion of the Justices, 101 N.H. 549, 554, 137 A.2d 726, 733 (1958).
354. Pub. Serv. Co. of N.H. v. State, 101 N.H. 154, 136 A.2d 600 (1957).
355. Opinion of the Justices, 101 N.H. at 558, 137 A.2d at 733.
356. Id.
357. In re Pub. Serv. Co. of N.H., 122 N.H. 919, 451 A.2d 1321 (1982).
358. Porter v. Town of Sanbornton, 150 N.H. 363, 369, 840 A.2d 778, 784 (2003).
359. In re Town of Sunapee, 126 N.H. 214, 489 A.2d 153 (1985); Berthiaume v. City of Nashua, 118
N.H. 646, 392 A.2d 143 (1978); Rollins v. City of Dover, 93 N.H. 448, 44 A.2d 113 (1945).
360. See Bemis Bros. Bag Co. v. Claremont, 98 N.H. 446, 102 A.2d 512 (1954); accord Town of
Sunapee, 126 N.H. at 214, 489 A.2d at 153. In the days of the stock-in-trade tax, the method of calculating it ensured current market values, while land, buildings, and waterpower tend to lag. Bemis
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recently developed exception to the general rule requiring proof of actual
disproportionality to secure an abatement. If a similarly situated class of
persons is subject to a tax, and, with no rational basis, some are singled out
for tax and others not taxed at all, there is an independent violation of
equal protection. The tax is unconstitutional as applied until the discrimination is ended.361
Taxes on estates are now primarily land taxes.362 As a legislative and
judicial dialectic developed and defined the power to tax other classes of
property, most personal property taxation flowed into the new channels.
The general tax on personal estate was repealed in 1981.363 Utility taxes
are now on receipts for or consumption of the service, not the franchises
themselves. With the real property transfer tax, even land has developed a
dynamic side.364 However, less land is taxable at full value. Concerns
about conservation, agriculture, and open space led to the constitutional
amendment of 1968 permitting valuation of land based on ―current use.‖365
Exemptions have accumulated for various public purposes.366 Yet these
real property taxes are the main support of local government. Consequently the modern cases have involved the increasing pressure for tax relief and
challenges to exemptions.367 The state‘s long-running struggle over school
funding also put state-level general property taxes on the table, sharpening
some controversies and obliging the court to declare that legislative power
to classify and exempt could not be used to defeat the constitutional requirement of uniformity and equality.368
shows that when a district allowed this without adjustment, a merchant taxed mostly on stock in trade
could always secure an abatement.
361. See Verizon New England, Inc. v. City of Rochester, 156 N.H. 624, 940 A.2d 237 (2007) (involving taxation for use of public property under an exception to the general exemption provided for in
N.H. REV. STAT. ANN. § 72:23, I(b) (2008)).
362. There are, of course, others. For example, the railroad tax remains. N.H. REV. STAT. ANN. §
82:1.
363. N.H. REV. STAT. ANN. § 72:15 (stating that the statute in question was repealed in 1981).
364. N.H. REV. STAT. ANN. § 78-B:1.
365. ―The general court may provide for the assessment of any class of real estate at valuations based
upon the current use thereof.‖ N.H. CONST. pt. II, art. 5-b (1968); see N.H. REV. STAT. ANN. § 79-A:1
(involving the ―Declaration of Public Interest‖). Note that this permits different assessment, but not
variation of the tax rate.
366. E.g., N.H. REV. STAT. ANN. § 72:12-a (Water and Air Pollution Control Facilities); N.H. REV.
STAT. ANN. § 72:37-a (Improvements to Assist Persons With Disabilities); N.H. REV. STAT. ANN. §
72:38 (dealing with aviation facilities); N.H. REV. STAT. ANN. § 72:76 (dealing with new commercial
or industrial construction).
367. See, e.g., Town of Peterborough v. MacDowell Colony, Inc., 157 N.H. 1, 943 A.2d 768 (2008)
(involving charitable uses); In re Town of Rindge, 158 N.H. 21, 959 A.2d 188 (2008) (involving university wastewater treatment plant as pollution control facility); In re Kat Paw Acres Trust, 156 N.H.
536, 937 A.2d 925 (2007) (involving improvements to assist persons with disabilities); In re Town of
Bethlehem, 154 N.H. 314, 911 A.2d 1 (2006) (involving solid waste facility; statute subsequently
changed).
368; Opinion of the Justices, 142 N.H. 892, 712 A.2d 1080 (1998).
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4. Other Developments
a. Tax Relief
The first modern decision on exemptions for tax relief appears to be an
advisory opinion in 1963.369 The questions involved additional exemptions
from the interest and dividends tax for taxpayers aged sixty-five and over
and for the totally disabled, neither with a means test.370 In approving the
age exemption, the court broke with older decisions without acknowledging it had done so.
When analyzing proposals in 1927 to levy a tax on all business income
with a $2,000 exemption and to levy the IDC only on income above
$2,000, the court said it was not merely a matter of classification. ―The
terminology used does not control. The substance of the provision must be
considered. The question is one of power to grant exemption.‖371 It then
struggled to define ―general‖ as opposed to ―special‖ exemptions, reviewed
various grounds for minimum amounts, and made some very broad statements about legislative discretion.372 The only specific grounds for a lowincome exemption was that ―[t]he recipient of the small income is not in a
position to pay, and the exemption tends to promote thrift.‖373 At the end,
the court hedged: ―the problem of legislative power to make quantitative
exceptions from taxability is a difficult one. There are substantial arguments for either view. There are difficulties in attempting to define limitations, if the power is thought to exist.‖374
By 1930 the court had resolved its doubts. Substantial quantitative exemptions were personal, not matters of property classification:
The question presented concerns the power to exempt because of
the amount of income received by the individual. It does not relate
to the power to grant a general exemption as to a certain class of
income. Such personal exemptions are granted upon a theory that
everyone should have a certain amount of income tax free, and,
except in a general way, they have no relation to the nature of the
income. The ground upon which a substantial quantitative person-
369.
370.
371.
372.
373.
374.
Opinion of the Justices, 105 N.H. 22, 192 A.2d 22 (1963).
Id.
Opinion of the Justices, 82 N.H. 561, 570, 138 A. 284, 289 (1927).
Id. at 570–75, 138 A. at 289–91.
Id. at 571, 138 A. at 289.
Id. at 575, 138 A. at 291.
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al exemption is here sustained is that the exempted party is too
poor to pay.375
Quantitative personal exemptions above some ability to pay threshold were
simply a way of importing progressivity, and ―our constitution does not
permit the laying of a graduated or progressive tax. A tax levy cannot be
sustained here upon any theory that the richer one is the higher his tax rate
should be.‖376 The court concluded that particular amounts lower than
those in the proposal were the most that could be thought reasonable. 377
The next year the court declared that public benefits based on age without
a means test would violate both the pensions clause of the constitution378
and the prohibition on taxes for private purposes found in part I, article 12
and part II, article 6.379 A backdoor way of achieving an age exemption by
excluding pensions and retirement allowances from an income tax was
blocked in 1937.380
Despite this, the 1963 opinion said a blanket, quantitative exemption
based on age was a permissible classification. ―While . . . age and poverty
are by no means synonymous, . . . in many cases they may have some
common attributes. . . . [and] poverty and misfortune have long been regarded as just grounds of relief.‖381 The court cited eligibility for old age
assistance and medical assistance to the aged at age sixty-five, and the exemption from poll tax at age seventy.382 Without articulating the connection, it suggested that retirement ages had some relationship to income
from ―sources other than earnings.‖383 Remarkably, the court cited its
1930 opinion without comment as if it supported this radical departure, and
it ignored the 1931 opinion on pensions.384 It seems unlikely the court
would have permitted sending a check to every resident over the age of
sixty-four. Yet by conflating classification of property with personal exemptions the court had upheld a classification of persons on speculative
grounds without the traditional requirement of a public purpose sufficient
to justify a public expenditure.
When the more visible and politically touchy property tax was involved, proponents of relief for the elderly were more circumspect. A
means test was built into a 1970 bill to exempt the first $5,000 of assessed
375.
376.
377.
378.
379.
380.
381.
382.
383.
384.
Opinion of the Justices, 84 N.H. 559, 571, 149 A. 321, 327 (1930).
Id., 149 A. at 328.
Id. at 572, 149 A. at 328.
N.H. CONST. pt. I, art. 36 (1784).
Opinion of the Justices, 85 N.H. 562, 154 A. 217 (1931).
Opinion of the Justices, 88 N.H. 500, 506, 190 A. 801, 806 (1937).
Opinion of the Justices, 105 N.H. 22, 24, 192 A.2d 22, 23 (1963) (citations omitted).
Id.
Id.
Id.
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value of residences owned by those aged seventy or more.385 The court,
with no reference to the means test, declared the bill consistent with the
state constitution in one long quotation from its 1965 IDT opinion.386
A 1971 income tax proposal included a limited property tax ―circuitbreaker‖ in the form of a credit for property taxes or, to the extent the taxpayer did not owe property taxes, a direct payment.387 The credit was designed to provide limited relief for low- and moderate-income households
from tax on their residences, whether owned or rented. By working
through an income tax, the expense would be borne by the state rather than
the municipalities. There were three limitations: Only property tax in
excess of 6% of household income was considered; no more than $900 of
that excess could be counted; and the credit was capped at $300.388 Faced
with potential cash payouts and a scheme classifying people by income and
tax burden, the court invoked traditional exemption analysis. The limitations were ―an essential prerequisite to constitutionality.‖389 The court
quoted the pension decision‘s prohibition on ―assignment of public funds
to other than public purposes,‖ and, citing that decision, said ―[p]ublic assistance, afforded in a limited way and without discrimination, to persons
eligible therefor [sic] by reason of a lack of means of their own, is a recognized exercise of the protective power.‖390 Echoing the depression-era
decisions, the court apparently made its own determination that the amount
involved was ―reasonable.‖391 A later proposal to ―return‖ state funds to
homeowners failed as discriminating among taxpayers. ―A rebate out of
public funds to some taxpayers but not others would clearly constitute discrimination unless sustainable upon grounds of reasonable classification.‖392
The one major property tax relief measure to have been adopted was
declared unconstitutional in 1974.393 It was a local-option system under
which cities and towns could adopt a partial exemption from local taxes
(not county or state) for owner-occupied residential property. The court
discussed the public-purpose aspect of the exemption extensively, finding
encouragement of home ownership itself a legitimate public purpose.394
Thus a means test was not strictly necessary, and the lack of provision for
385.
386.
387.
388.
389.
390.
391.
392.
393.
394.
Opinion of the Justices, 110 N.H. 206, 266 A.2d 111 (1970) (per curiam).
Id. at 208, 266 A.2d at 113.
Opinion of the Justices, 111 N.H. 136, 276 A.2d 821 (1971).
Id. at 141, 276 A.2d at 823–24.
Id., 276 A.2d at 824.
Id. at 142, 276 A.2d at 824.
Id. This seems to differ from ―not unreasonable.‖
Opinion of the Justices, 113 N.H. 87, 89, 302 A.2d 112, 114 (1973) (per curiam).
Felder v. City of Portsmouth, 114 N.H. 573, 324 A.2d 708 (1974).
Id. at 577, 276 A.2d at 710.
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renters irrelevant.395 The previous year‘s opinion regarding state payments
to homeowners was distinguished, as that scheme ―displaye[d] overtones
of public welfare‖ with ―no criteria by which to limit its assistance to those
homeowners in financial straits.‖396 The scheme, unfortunately, had a fatal
design flaw. Instead of exempting the first dollars of home valuation, the
statute applied the full tax rate on the first $8,000, exempted the next
$5,000 ($10,000 for taxpayers over age sixty-five), and applied the full tax
rate to the anything higher. The reason for taxing the first $8,000 was to
assure that every homeowner paid some taxes to the community.397 However, the result was that only those with properties assessed at $8,000 or
less398 paid the full tax rate, which had increased 10% to fund the exemption.399 There were other paradoxical effects, but this was sufficient: ―In
our view the law is unconstitutional because the minimum valuation provision discriminates against the poor by unreasonably raising their taxes to
finance tax relief for persons owning more expensive homes.‖400
b. Exemptions for Economic Development
Exemptions to encourage economic development were once of uncertain constitutionality. In 1929 the court decided Eyers Woolen Co. v. Town
of Gilsum.401 A special act had authorized ―the town of Gilsum . . . to exempt from taxation for a term of not more than ten years a new woolen
mill and the machinery to be installed therein proposed to be erected in
said town by or for the Eyer Woolen Mill.‖402 The actual issue was easy—
the exemption was unique and granted to a named private business, thus
violating the principle of equality.403 However, the court wrote extensively
about broader issues, and much of this dictum argues that industrial development was an insufficient public purpose to justify tax exemption. ―Aiding a private manufacturing corporation is not a public purpose.‖404 A few
years later the court held the same view:
The indirect public advantage of industrial welfare and general
prosperity is not a valid reason for the aid. Even if the public ad395. Id. at 577–78, 324 A.2d at 710–11.
396. Id. at 578, 324 A.2d at 710.
397. Id. at 579, 324 A.2d at 711.
398. This was not a tiny class, especially considering that these were 1974 dollars and both mobile
homes and condominiums were covered.
399. Felder, 114 N.H. at 576, 324 A.2d at 709.
400. Id. at 579, 324 A.2d at 711.
401. 84 N.H. 1, 146 A. 511 (1929).
402. Id. at 3, 146 A. at 512.
403. Id. at 16, 146 at 519.
404. Id.
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vantage takes specific form, such as work for those in need of employment and without employment dependent on public assistance,
public aid to the employer is a violation of the constitutional principle against taxation for private purposes.405
Eyers Woolen Co. has been frequently cited for various propositions, but
its view of the legitimacy of aid to industry by uniform, general exemptions was repudiated in the modern era:
The State and its citizens presumably receive direct benefits from
tax exemptions for industrial construction by attracting new industries into the State and keeping existing industry here, thereby
creating economic growth. Since all industrial uses that meet the
statutory definition may qualify for limited tax exemptions, the bill
does not improperly classify property. The legislature has determined that the public welfare would benefit from the encouragement of industrial construction in the State and that this may be accomplished through the proposed bill. The purpose of stimulating
economic growth is one properly within the legislature‘s discretion
in acting for the welfare of the state.406
This seems to have replaced an intermediate position that allowed the exemption of industrial facilities, but only if a ―just share of the public expense‖ was secured through a payment in lieu of taxes, set by a quasijudicial body taking into account all relevant factors including ―employment opportunities to be created or retained.‖407
c. Double Taxation
Double taxation has been described as one form of disproportionality.408 It comes in two kinds—constitutional or not. Nineteenth-century
cases on double taxation lost their meaning with the 1903 amendment.
When for a given level of government there was only one rate and valuation for any property taxed, any duplication was unconstitutional. Then
problems arose with questions such as whether the stock of a corporation,
taxed to the shareholder in his town of residence, was the same property as
405. Opinion of the Justices, 88 N.H. 484, 488, 190 A. 425, 428 (1937).
406. Opinion of the Justices, 142 N.H. 95, 100, 697 A.2d 120, 123 (1997) (citations omitted) (involving municipal tax exemptions for industrial construction); see also Opinion of the Justices, 144 N.H.
374, 746 A.2d 981 (1999) (involving municipal tax exemptions for electric utility on personal property).
407. Eltra Corp. v. Town of Hopkinton, 119 N.H. 907, 914, 409 A.2d 1145, 1149 (1979). Payments
in lieu of taxes (PILOTs) remain a feature of New Hampshire exemption provisions.
408. Conner v. State, 82 N.H. 126, 130, 130 A. 357, 359 (1925).
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the physical assets of that corporation taxed in their location.409 From the
beginning, however, proportionality has been judged only within taxing
jurisdictions—district, municipality, county, or state.410 A statewide property tax layered on property subject to local taxes is not (and has never
been) disproportional.411
When the 1903 amendment permitted taxation on ―other classes of
property‖ in addition to taxes on estates (rather than in place of them), it
necessarily permitted the same property to be taxed in two or more ways
depending on what classes it fit into and the extent to which they overlapped. ―Disproportion in the tax, in the sense that taxes are laid in several
ways rather than in one way, is not objectionable, in the absence of some
constitutional prohibition of such procedure. The power to impose disproportional taxes is put beyond question when it is specifically permitted by
constitutional provisions.‖412 What was once denounced as an unconstitutional assertion of ―despotic power‖413 is now permissible, even routine.
Double taxation is now a problem of classification. If a given dollar or
thing fits within or passes through two or more classes, it may constitutionally be subject to two or more taxes if the classes are so defined that
―the incidence of the two taxes is determined by separate and distinct factors.‖414 This is frequently misunderstood. The court itself took some time
to work out the distinction. It had briefly taken the position that a net profit tax on a business paying gross sales tax would be unconstitutionally
double,415 but, noting that profit was net of expenses (which would include
the sales tax), it later concluded each tax‘s incidence was different and
reversed its position.416 The focus is on practical effect rather than taxonomy—although the gasoline ―toll‖ is not even a tax, the court has said
gasoline would have to be exempted from a general sales tax.417 As recently as 1951, the House of Representatives was concerned that taxing goods
as personal estate in the manufacturing process might be incompatible with
a retail sales tax on the same goods. It was not.418 Nor did the railroad tax
409. The court found that it was the same property. Smith v. Burley, 9 N.H. 423, 427 (1838).
410. See generally Boston, Concord, & Montreal R.R. v. State, 60 N.H. 87 (1880).
411. Opinion of the Justices, 112 N.H. 32, 35, 287 A.2d 756, 758 (1972) (discussing the homestead
exemptions at state level).
412. Conner, 82 N.H. at 130, 130 A. at 359.
413. Robinson v. Dover, 59 N.H. 521, 524 (1880).
414. Opinion of the Justices, 84 N.H. 559, 577, 149 A. 321, 330 (1930), criticized by Opinion of the
Justices, 88 N.H. 500, 190 A. 801(1937).
415. Id.
416. Opinion of the Justices, 88 N.H. at 504, 190 A. at 805.
417. Id. at 805.
418. Opinion of the Justices, 97 N.H. 533, 53637, 81 A.2d 845, 849 (1951).
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on tangible property need to be credited against the BPT: ―the incidence of
the two taxes is determined by separate and distinct factors.‖419
Difficulties developed with the proliferation of classes of taxable income. The interest and dividends tax first occupied the field. Each proposal to adopt a more general income tax had to deal with it.420 One version of the proposed gross income tax of 1949 provided for exempting
income subject to the IDT.421 As the tax was pervasively flawed, the court
did not reach that issue. In 1965, the proponents of a net income tax overlooked the layering, and the court held that stacking another income tax on
the IDT would be unconstitutionally double.422 The successful business
profits tax of 1970 excluded from the definition of income any income that
had been taxed under the IDT.423 In all of these cases, the general income
tax rate was different from the IDT. Although the incidence of two classes
of tax might be so similar they could not be stacked, they could still be
sufficiently distinct to justify different rates. ―The Constitution does not
require the rate of a tax upon net income to be uniform with that of the
existing interest and dividends tax, which is a tax upon certain gross income, now fixed at 4 1/4%.‖424 Similarly, although stacking was avoided
by allowing a BPT credit, there was no constitutional problem in the difference between the BPT and the significantly higher tax on electric and
gas franchise income.425 While capital gains have been held sufficiently
distinct from business profits to be taxed at a different rate, business capital
gains could not be subject to double taxation as both.426
There is also potential for double taxation on receipt by a shareholder
(individual or corporate) of dividend income that may have already been
taxed as dividend income of the corporation. This is the reason corporations are not subject to the IDT itself.427 Similarly, a parent subject to the
BPT has a deduction for dividends received from subsidiaries also paying
419. Opinion of the Justices, 111 N.H. 210, 212, 279 A.2d 741, 742 (1971).
420. See, e.g., Opinion of the Justices, 88 N.H. at 500, 190 A. at 801. One income tax proposal in
1971 would have solved the problem by repealing the IDT. Opinion of the Justices, 111 N.H. 136, 137,
276 A.2d 821, 821 (1971).
421. Opinion of the Justices, 95 N.H. 537, 538, 64 A.2d 320, 320 (1949).
422. Opinion of the Justices, 106 N.H. 202, 207, 208 A.2d 458, 462 (1965).
423. Opinion of the Justices, 110 N.H. 117, 120, 262 A.2d 290, 293 (1970).
424. Id. at 122, 262 A.2d at 295.
425. Id. at 120, 262 A.2d at 293.
426. Opinion of the Justices, 117 N.H. 512, 517, 374 A.2d 964, 966–67 (1977).
427. Conner v. State, 82 N.H. 126, 132, 130 A. 357, 360 (1925). They are still excluded. N.H. REV.
STAT. ANN. § 77:3 (2008). Partnerships and LLCs are subject to the tax, but distributions to the partners or members are not. N.H. REV. STAT. ANN. § 77:15.
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the tax.428 The BET deals with a similar cascading problem through deductions for previously taxed distributions.429
The court‘s position that classes could be sufficiently distinct to justify
differential rates, but sufficiently similar to justify a credit or exclusion to
avoid double taxation, is what made our present combination of the BPT
with a broader business enterprise tax (BET) possible.430
d. Retrospectivity
The New Hampshire Constitution prohibits retrospective laws.431 A
retrospective law is one that ―takes away or impairs vested rights acquired
under existing laws, or creates a new obligation, imposes a new duty, or
attaches a new disability, in respect to transactions or considerations already past . . . .‖432 Imposition of a new tax on transactions completed in
prior years is prohibited.433 However, the taxable event may trigger recognition of appreciation attributable to periods prior to the adoption of the
tax.434
The few cases on retrospective taxation are fairly recent. At one point
a bare majority of the court advised that a change in the rate of the land use
change tax after the owner had opted for current use valuation would be
unconstitutionally retrospective.435 In a subsequent contested case, the
court unanimously renounced that view and adopted that of the dissenters.436 The taxability of property defined by an act or event is determined
by the law at the time of the act or event, not by some prior law on which
the taxpayer may have relied. As the legislature lacks power to grant an
irrevocable exemption, repealing one cannot be retrospective.437 However,
a statute may not retroactively annul a contract for a payment in lieu of
taxes that was lawfully authorized when made.438
428. N.H. REV. STAT. ANN. § 77-A:4(IV) (since repealed); Gen. Elec. Co. v. Comm‘r, 154 N.H. 457,
45859, 914 A.2d 246, 248 (2006).
429. See N.H. REV. STAT. ANN. § 77-E:3(II), (III).
430. See supra Part II.C.
431. N.H. CONST. pt. I, art. 23 (1784).
432. Woart v. Winnick, 3 N.H. 473, 479 (1826) (internal citation omitted) (quoting Soc‘y for the
Propagation of the Gospel v. Wheeler, 22 F. Cas. 756, 767 (C.C.D.N.H. 1807) (No. 13,156).
433. Cagan‘s, Inc. v. N.H. Dep‘t of Revenue Admin., 126 N.H. 239, 249, 490 A.2d 1345, 1361
(1985).
434. Shangri-La, Inc. v. State, 113 N.H. 440, 442, 309 A.2d 285, 287 (1973).
435. See generally Opinion of the Justices, 137 N.H. 270, 627 A.2d 92 (1993), retreated from by
Tyler Rd. Dev. Corp. v. Town of Londonderry, 145 N.H. 615, 766 A.2d 267 (2000).
436. Tyler Rd. Dev. Corp., 145 N.H. at 617, 766 A.2d at 270.
437. See generally Trs. of Phillips Exeter Acad. v. Town of Exeter, 90 N.H. 472, 27 A.2d 569 (1940).
438. Lower Vill. Hydroelectric Assocs. v. City of Claremont, 147 N.H. 73, 76, 782 A.2d 897, 900
(2001).
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One decision has apparently permitted a degree of retrospectivity. In
Estate of Kennett v. State,439 the legislature had adopted a business profits
tax. The statute became effective April 22, 1970, but by express terms
applied to gross business profits earned after January 1, 1970. The transactions in question were two sales of real estate pursuant to options.440 The
options were ―exercised‖ in 1969, deeds were delivered and recorded in
February and March of 1970, and payment was received in February and
October of 1970.441 The tax was defined with respect to amounts shown on
federal tax returns. Under applicable federal rules, the sales occurred on
delivery and recordation of the deeds, not receipt of payment.442 Although
the court accepted this determination of the moment of recognition, it still
upheld the levy.443 The business profits tax had been adopted at a special
session called for that purpose.444 It had previously been the subject of
months-long, very public study, and refinement by a legislatively created
task force with participation of more than 300 citizens.445 Its reliance on
federal tax calculations imposed a choice among retrospectivity: a year‘s
delay in efficacy, or presumably daunting complexities of proration.446
Faced with the legislature‘s choice, the court apparently found the levy
fundamentally fair and a practical necessity.447
A later proposal to similarly back-date the scope of a gross receipts tax
on electric utilities was declared unconstitutional, although in part because
the utility would have been prevented from recouping its payment through
a rate increase.448 The court has since cast doubt on the ―vitality‖ of the
―reasoning and holding of Kennett,‖449 and it is almost certainly confined
to its peculiar context.
439. 115 N.H. 50, 333 A.2d 452 (1975).
440. Id. at 55, 333 A.2d at 45556.
441. Id.
442. Id. at 5152, 333 A.2d at 453.
443. Id. at 5355, 333 A.2d at 45456.
444. Id. at 5354, 333 A.2d at 454.
445. Id.
446. Id.
447. The elaboration of the long, public gestation of the tax with its heavy investment of time and
talent is superfluous except as tacit argument for fairness (no surprise) and against disrupting implementation with a judicially shortened tax year or worse. ―Practical necessity‖ was the explanation
offered ten years later by a skeptical court. Cagan‘s, Inc. v. N.H. Dep‘t of Revenue Admin., 126 N.H.
239, 24950, 490 A.2d 1345, 1362 (1985).
448. Opinion of the Justices, 123 N.H. 349, 354, 461 A.2d 132, 135 (1983).
449. Cagan’s, Inc., 126 N.H. at 249, 490 A.2d at 1362.
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5. Summary of Changes in the Modern Era
The modern era opened with approval of a product-specific sales tax
shocking to judges steeped in the philosophy of earlier times. To justify
this change, the court drew on sweeping language about the legislative
power of classification based on the pre-1903 single-rate system. It tentatively undertook to define the ―the legal requirements of classification‖450
under the power given in 1903 and skeptically deflected proposals for differing taxes on the sale of sub-classes of ordinary goods or services. The
suggestion that there might be some basic form of sales tax was last signaled in 1971.451 The notion that there were a few broad classes of taxes
within which rates and valuation methods must be uniform452 disappeared
after 1951.453 The income tax opinions validated numerous classifications
with differing rates, merely requiring a ―rational basis.‖ 454 The old proposition that ―[a]ll taxes that can be made proportional must be so assessed‖455 has been stood on its head. It now seems no tax levied on a distinct class need be proportional to any other. Only when the court has considered two income classes to be essentially the same456 or found a class
irrationally under-inclusive457 has it constrained legislative discretion in
creating classes of taxable property. While sometimes treating exemptions
in the old way, as indirect expenditures to be justified under the protective
power,458 the court more often treated exemption as a variety of classification, justifiable on any rational ground,459 sometimes even presuming an
unstated rational ground.460 This period also saw greater resort to ―fees‖
450. Havens v. Att‘y Gen., 91 N.H. 115, 117, 14 A.2d 636, 638 (1940).
451. Opinion of the Justices, 111 N.H. 131, 132, 276 A.2d 817, 818 (1971).
452. ―[A]ll taxes of a given class must be laid at a common rate . . . annual taxes upon estates . . .
inheritance taxes . . . [and] the taxation of incomes.‖ Opinion of the Justices, 82 N.H. 561, 570, 138 A.
284, 289 (1927); accord Opinion of the Justices, 84 N.H. 557, 571, 149 A. 321, 327 (1930).
453. ―All income taxes must be laid at a common rate.‖ Opinion of the Justices, 97 N.H. 543, 545,
81 A.2d 851, 853 (1951).
454. N. Country Envtl. Servs. v. State, 157 N.H. 15, 19, 943 A.2d 786, 790 (2008); see Opinion of
the Justices, 117 N.H. 512, 518, 374 A.2d 964, 968 (1977) (capital gains at differing rate); Opinion of
the Justices, 110 N.H. 117, 124, 262 A.2d 290, 296 (1970) (approval of the BPT). The shift from New
Hampshire‘s traditional language (just distinction, just ground) to ―rational basis‖ apparently occurred
in Cagan’s, Inc. See 126 N.H. at 246, 490 A.2d at 1359.
455. Thompson v. Kidder, 74 N.H. 89, 96, 65 A. 392, 396 (1906).
456. Opinion of the Justices, 123 N.H. 344, 347, 461 A.2d 129, 130 (1983); Opinion of the Justices,
123 N.H. 296, 302, 460 A.2d 93, 98 (1983).
457. Verizon New England, Inc. v. City of Rochester, 156 N.H. 624, 639, 940 A.2d 237, 244 (2007);
Cagan’s, Inc., 126 N.H. at 246, 490 A.2d at 1359.
458. ―[A] public benefit conferred by the exemption may be sufficient to render it constitutional.‖ In
re Town of Bethlehem, 154 N.H. 314, 324, 911 A.2d 1, 9 (2006). See also Opinion of the Justices, 144
N.H. 374, 382, 746 A.2d 981, 987 (1999) (upholding exemption as a permissible public expenditure).
459. See, e.g., N. Country Envtl. Servs., 157 N.H. at 20, 943 A.2d at 790; Smith v. N.H. Dep‘t of
Revenue Admin., 141 N.H. 681, 687, 692 A.2d 486, 491 (1997).
460. Opinion of the Justices, 110 N.H. 117, 124, 262 A.2d 290, 296 (1970) (―might be thought‖).
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for recovering the costs of governmental activity, and judicial elaboration
of the constitutional borderline between permitted fees and unconstitutionally structured taxes.461
III. A MODERN APPROACH: SORTING OUT THE CONCEPTS
Limits on the legislature‘s powers, both overall and with respect to
taxation, are rooted in particular constitutional passages and concepts.
Given the founders‘ discursive style, the passages sometimes overlap and
the concepts are expressed in differing terms. A problem can often be approached in several ways. For example, a highly selective tax may be attacked as violating equal protection, lacking reason, creating an improper
classification, and being disproportional. An exemption may similarly be
attacked on all those grounds, as well as for being an application of public
resources to private purposes.
Arguments by litigants and questions from the other branches of government take any of these approaches, singly or in combination. Consequently, some of the court‘s opinions address a problem on narrow or uncommon grounds,462 while others blend the arguments in conclusory language or cite constitutional provisions and lines of cases en masse. There
are nearly two centuries of judicial gloss. In the nineteenth century, the
court created a workable synthesis faithful to the founders‘ philosophic
language. The constitutional amendment of 1903 was irreconcilable with
part of that synthesis, but, as it labored for decades to resolve the resulting
tension, the court cited the old cases and used the same language in an increasingly different context. Key words have been repeatedly used in multiple senses. What follows is an effort to distinguish and describe the current applications of the most important concepts and restate them more
simply.
A. Public Purpose, Equality, Reason
The first question arising when a tax is imposed is ―whether the purpose of such burden may properly be considered public.‖463 Further, ―[a]ll
461. See, e.g., D‘Antoni v. Comm‘r, N.H. Dep‘t of Health & Human Servs., 153 N.H. 655, 658, 917
A.2d 177, 180 (2006). The scope and limits of non-tax revenue powers will be addressed in a forthcoming article.
462. For example, see In re Town of Bethlehem, where the town rested its equality arguments on part
I, article 10, neglecting articles 1 and 12. 154 N.H. at 318, 911 A.2d at 4.
463. Eyers Woolen Co. v. Town of Gilsum, 84 N.H. 1, 10, 146 A. 511, 516 (1929) (quoting Berlin
Mills Co. v. Wentworth‘s Location, 60 N.H. 156, 157 (1880)).
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taxation must be equal.‖464 However, ―[e]qual protection permits classifications that are reasonable and not arbitrary and have a rational relation to
the public purpose sought to be achieved by the legislation involved.‖465 In
actual cases, these three concepts are inextricably related. A rational distinction made for a public purpose does not violate the principle of equality. Conversely, if a tax or exemption treats similarly situated persons differently, it either improperly favors one class for private benefit (violating
several articles of the Bill of Rights),466 or is irrational (violating the limit
on legislative power in part II, article 5),467 or both. If a particular tax is
irrational, it either lacks a public purpose, or unequally burdens those subject to it, or both.468
Respect for the legislative branch and the presumption of validity
mean that the reason and public purpose requirements are often phrased in
the negative. A distinction or classification will be upheld ―as long as ‗the
proposed selection is not arbitrarily made or for the sole purpose of preferring some taxpayers to others.‘‖469 Coupling these requirements permits
the court to avoid impugning legislative motives while preventing invidious discrimination. Thus, in Claremont School District v. Governor,470
the court conceded that the stated legislative motive for a transitional exemption from the statewide school tax to taxpayers of some towns (avoidance of foreclosures, bankruptcies, etc.) was a proper purpose.471 However, to extend the exemption to everyone in the ―property rich‖ communities
rather than the minority who might face hardship from an immediate tax
increase was ―so arbitrary as to serve no useful purpose of a public nature‖
and ―unreasonable.‖472
Similarly, tax relief for low and moderate income homeowners was
―directed toward a legitimate public purpose‖ in Felder v. City of
464. State v. Pennoyer, 65 N.H. 113, 114, 18 A. 878, 879 (1889) (citing seventeen prior cases).
465. Opinion of the Justices, 137 N.H. 270, 277, 627 A.2d 92, 96 (1993).
466. N.H. CONST. pt. I, art. 1 (1784) (―[G]overnment . . . instituted for the general good.‖); id. pt. I,
art. 10 (―Government being instituted for the common benefit . . . and not for the private interest . . . of
any . . . class of men.‖); id. pt. I, art. 12 (explaining that protection and taxation are reciprocal); id. pt.
II, art. 6 (confining taxation to the ―public charges of government‖).
467. Id. pt. II, art. 5 (authority granted to general court ―to make . . . reasonable laws . . . and levy
proportional and reasonable assessments, rates, and taxes‖).
468. At the hypothetical extreme these concepts logically could separate. A wholly irrational tax
might be levied on all, or a rational one for an illegitimate purpose, but the general rule seems sufficient
for the decided cases and any that could be reasonably anticipated.
469. Opinion of the Justices, 144 N.H. 374, 383, 746 A.2d 981, 988 (1999). This quotation is found
in at least four other Opinions of the Justices. Opinion of the Justices, 142 N.H. 95, 99, 697 A.2d 120,
123 (1997); Opinion of the Justices, 137 N.H. at 275, 627 A.2d at 95; Opinion of the Justices, 97 N.H.
543, 544, 81 A.2d 851, 852 (1951); Opinion of the Justices, 97 N.H. 533, 536, 81 A.2d 845, 849
(1951).
470. 144 N.H. 210, 744 A.2d 1107 (1999).
471. Id. at 21617, 744 A.2d at 1111.
472. Id.
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Portsmouth,473 but the mechanism irrationally discriminated against those
very groups.474 A dubious proposal to exempt wine and liquor dealers
from the business profits tax could be deflected by indicating that no ―just
reason‖ had yet been articulated.475
While public purpose/reason analysis is routine in challenges to exemptions, it occasionally defeats a tax. Utilities seem to inspire particular
legislative attention. They may, of course, be separately taxed on their
franchises, their income,476 or their gross receipts.477 The tax, however,
must be rational. In 1957, the franchise tax on electric utilities was declared unconstitutional on the sole ground that the statutory valuation formula (which guaranteed overvaluation) was ―illogical and unjust.‖478 A
later proposal to levy a state property tax on electric plants capable of generating 500 megawatts or more would have reached only one facility, the
Seabrook nuclear plant.479 While the court speculated that nuclear power
generation might justify a special classification, capacity alone did not, and
―in the absence of a just reason‖ for separate classification, the proposal
was unconstitutional.480
In 1982, a lucrative administrative interpretation of the utility income
tax had to be overturned because its application would mean the statutory
formula would ―not bear a rational relationship to economic reality.‖ 481
When the City of Rochester taxed Verizon New England‘s use of public
ways without taxing similar use by other utilities, it lost on equal protection despite the application of minimum scrutiny.482 The city had offered,
and the court could conceive of, ―no rational reason for selectively imposing‖ the tax and no ―legitimate governmental interest . . . furthered by [the]
disparate treatment.‖483
These requirements operate within taxing districts. So long as they are
uniform in the taxing district,484 taxes and exemptions can be subject to
473. 114 N.H. 573, 324 A.2d 708 (1974).
474. Id. at 57879, 324 A.2d at 711.
475. Opinion of the Justices, 115 N.H. 306, 309, 339 A.2d 450, 452 (1975).
476. See generally Opinion of the Justices, 101 N.H. 549, 137 A.2d 726 (1958).
477. See generally Opinion of the Justices, 123 N.H. 349, 461 A.2d 132 (1983).
478. Pub. Serv. Co. of N.H. v. State, 101 N.H. 154, 162-63, 136 A.2d 600, 606–07 (1957).
479. Opinion of the Justices, 118 N.H. at 345–46, 386 A.2d at 1275.
480. Id. at 346, 386 A.2d at 1275.
481. In re Public Service Co. of N.H., 122 N.H. 919, 925, 451 A.2d 1321, 1325 (1982).
482. Verizon New England, Inc. v. City of Rochester, 156 N.H. 624, 631, 940 A.2d 237, 244 (2007).
483. Id.
484. Opinion of the Justices, 144 N.H. 374, 380, 746 A.2d 981, 986 (1999) (municipal exemptions
for utility personal property); Opinion of the Justices, 142 N.H. 95, 97, 697 A.2d 120, 122 (1997)
(municipal exemptions for industrial construction).
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local option. The legislature frequently provides that cities and towns may
adopt particular exemptions from local taxes.485
No unconstitutional delegation of authority results when the legislature establishes the terms of a general act, but leaves the determination of whether it shall have the force of law to the governing
bodies of the localities to be affected or to the people themselves.
Constitutionally mandated requirements for uniformity and equality of taxation would not be violated should less than all cities and
towns adopt the optional exemptions provided by the bill, with a
resulting uneven system of taxation.486
B. Proportionality
Proportionality is used in different ways in the cases, inviting confusion. Sometimes it refers to part I, article 12: ―Every member of the community has a right to be protected by it, in the enjoyment of his life, liberty,
and property; he is therefore bound to contribute his share in the expense
of such protection.‖ In Smith v. New Hampshire Department of Revenue
Administration, the court said this passage ―literally imposes a requirement
of proportionality of a taxpayer's portion of the public expense, according
to the amount of his taxable estate, and requires that similarly situated taxpayers be treated the same.‖487 Paradoxically, however, the same opinion
continues that ―[s]trictly speaking, the rule of equality and proportionality
does not apply to the selection of the subjects of taxation, provided just
reasons exist for the selection made.‖488 Thus, one kind of proportionality
is constitutionally required, but another is not. The state and current court
have not been well served by loose use of the word in many older opinions.
―Proportionality‖ or ―disproportionate‖ appear in the cases in at least
four senses: (1) equal protection claims about selection and classification
of the subjects of taxation or exemption; (2) the requirement of uniform
rates and valuations in the design of a particular tax; (3) the possible requirement that different taxes of the same type have the same rate; and (4)
485. E.g., N.H. REV. STAT. ANN. § 72:1-c (2008) (optional collection of Resident Tax); N.H. REV.
STAT. ANN. § 72:28 (standard and optional Veterans‘ Tax Credit); N.H. REV. STAT. ANN. § 72:29-a
(surviving spouse); N.H. REV. STAT. ANN. § 72:37-b (exemption for the disabled); N.H. REV. STAT.
ANN. § 72:62 (exemption for solar energy systems); N.H. REV. STAT. ANN. § 72:66 (exemption for
wind-powered energy systems); N.H. REV. STAT. ANN. § 72:76 (property tax exemption for new commercial or industrial uses).
486. Opinion of the Justices, 142 N.H. at 10001, 697 A.2d at 124 (citations and quotation marks
omitted); accord Opinion of the Justices, 144 N.H. at 379, 746 A.2d at 986.
487. 141 N.H. 681, 686, 692 A.2d 486, 491 (1997) (citation and internal quotation marks omitted).
488. Id. The Court quoted this language as recently as 2008 in North Country Environmental Services, 157 N.H. 15, 19, 943 A.2d 786, 790 (2008).
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taxpayer challenges to their assessments under a tax that is constitutional
but misapplied in their cases.
Since 1903, part I, article 12 should be primarily understood in the first
of these senses, although it has some bearing on the fourth. While the provision that each ―contribute his share‖ is obviously directed toward fairness
in taxation, it does not contain the word proportionality. There is no formula by which a just ―share‖ of the expense of protecting ―life, liberty, and
property‖ can be calculated. Relative benefits enjoyed, needs for protection, ability to pay, practicality of enforcement, costs of collection, etc.,
lurk in this general expression of the social contract. Balancing these factors ―is not a judicial question.‖489
Under the single-rate system, the court could force a sort of overall
proportionality once the legislature selected the objects of taxation, but it is
impossible in a system of layered classes. This provision is now simply an
emphatic and specific expression of the general principle of equality found
in other parts of the Bill of Rights.490 Translating it into proportionality
adds nothing to public purpose, equal treatment, and reason. ―The reasons
which may justify the use of the selective power as to the subjects for taxation may be as various as the motives which induce any rational action,‖491
and ―similarly situated taxpayers [must] be treated similarly.‖492
The second sense is a textually-based and distinct limitation. Article 5
of part II actually uses the word proportional, empowering the legislature
to ―impose and levy proportional and reasonable assessments, rates, and
taxes . . . .‖ This provision has always been applied to the structure of
particular tax laws. Except for polls, all taxes are on property. Part II,
article 5 proportionality requires taxes to be proportional to the value of the
property—i.e., ad valorem. That requires a uniform rate and uniform valuation.493 The rate may not be varied on the basis of a personal characteristic of the taxpayer such as relative wealth.494 The word ―reasonable‖ qualifies the mathematical requirement, authorizing exemptions for just
cause.495 This is one source of confusion. An unjustified exemption vi489. Morrison v. Manchester, 58 N.H. 538, 55556 (1879).
490. See, e.g., N.H. CONST. pt. I, arts. 1, 2, 10 (1784).
491. Opinion of the Justices, 94 N.H. 506, 509, 52 A.2d 294, 296 (1947).
492. Starr v. Governor, 148 N.H. 72, 74, 802 A.2d 1227, 1229 (2002).
493. In re Town of Rindge (N.H. Dep‘t of Envtl. Servs.), 158 N.H. 21, 26, 959 A.2d 188, 192 (2008);
N. Country Envtl. Servs., 157 N.H. at 19, 943 A.2d at 790; Opinion of the Justices, 144 N.H. 374, 378,
746 A.2d 981, 985 (1999); Opinion of the Justices, 142 N.H. 95, 101, 697 A.2d 120, 124 (1997); Smith
v. N.H. Dep‘t of Revenue Admin., 141 N.H. 681, 68586, 692 A.2d 486, 490 (1997); Opinion of the
Justices, 131 N.H. 640, 643, 557 A.2d 273, 275 (1989).
494. Opinion of the Justices, 99 N.H. 525, 527, 113 A.2d 547, 548 (1955) (basing state income tax on
a percentage of federal tax paid discriminates among taxpayers).
495. See generally Opinion of the Court, 4 N.H. 565 (1829), criticized by Trs. of Phillips Exeter
Acad., 90 N.H. 472, 27 A.2d 569 (1940).
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olates part II, article 5 proportionality, but exemption is often conflated
with classification of property (part II, article 6) or approached as merely a
matter of equal protection. If the same criteria and standards of review
prevailed in all cases, this untidiness would be harmless. However, as explained below, some exemptions are based on the protective power, including some defined by personal characteristics that are forbidden as bases for
a classification of property. It is also possible that different standards of
review are or should be applied in these different contexts.
The third sense, that different taxes of the same type have the same
rate, may be obsolete. At one time, the court held that there were classes
of taxes, and that ―all taxes of a given class must be laid at a common
rate.‖496 ―The object in requiring the use of a common rate [was] to insure
the imposition of a proportionate burden.‖497 It was said as recently as
1951 that ―[a]ll income taxes must be laid at a common rate,‖498 but thereafter the types of income taxable at different rates multiplied as the court
approved various classifications.499 In evaluating possible taxes on sales of
goods or services, the court seems to have resolved the issue by merging
the concept of classes of taxes with classification of property so that all
property not properly distinguishable would necessarily be taxed proportionally because it would have to be in one class.500 As part II, article 6
speaks only of classes of property, not classes of taxes, this seems the correct approach.
The fourth use of proportionality in the tax cases involves disproportionate assessment of a taxpayer‘s property under a valid tax. To secure
abatement, the taxpayer must show his appraisal is above the average of
other property of the same class in the taxing district.501 The process dates
back to the nineteenth century when the court treated uniformity, equality,
and proportionality as general principles without specifying particular constitutional provisions.502 This usage could be grounded in part I or part II
496. Opinion of the Justices, 82 N.H. 561, 570, 138 A. 284, 289 (1927).
497. Id. at 567, 138 A. at 288.
498. Opinion of the Justices, 97 N.H. 543, 545, 81 A.2d 851, 853 (1951).
499. See supra Parts II.D.4 & 7.
500. Opinion of the Justices, 111 N.H. 206, 209, 278 A.2d 348, 350 (1971); see also Opinion of the
Justices, 97 N.H. at 546, 81 A.2d at 853.
501. In re Town of Sunapee (N.H. Bd. of Tax & Land Appeals), 126 N.H. 214, 217, 489 A.2d 153,
155 (1985); Berthiaume v. City of Nashua, 118 N.H. 646, 648, 392 A.2d 143, 144 (1978); Rollins v.
City of Dover, 93 N.H. 448, 450, 44 A.2d 113, 114 (1945). The modern cases involve real estate, but
the principle would also apply if, for example, a particular railroad or utility franchise or income stream
were overvalued in comparison to others. See, e.g., Wyatt v. State Bd. of Equalization, 74 N.H. 552,
554, 70 A. 387, 389 (1908).
502. E.g., Amoskeag Mfg. Co. v. City of Manchester, 70 N.H. 336, 345, 47 A. 74, 74 (1900) (―the
constitutional rule of equality‖); Amoskeag Mfg. Co. v. City of Manchester, 70 N.H. 200, 204, 46 A.
470, 472 (1900) (―the constitutional rule of equality requires a proportional and equal valuation‖).
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of the constitution, but it deals only with the application of proportionality
to the administration of a valid tax, not a limit on legislative authority. The
distinction was recently made in Verizon New England, Inc. v. City of
Rochester, where the tax failed on equal protection grounds as irrationally
under-inclusive without any need to show that the taxpayer‘s total assessment was disproportionally high in comparison with the average rate for
other taxpayers.503
The term proportionality seems best confined to the second and fourth
senses in which it is used: the requirement of uniform rates and valuations
in the design of a particular tax, and taxpayer challenges to their assessments under a tax that is constitutional but misapplied in their cases.
C. Selection and Classification
When all taxes but polls were on estates, at one rate and uniform valuation in each taxing district, the legislature had one choice—to tax or not.
Excises were forbidden, but in selecting property subject to taxation, legislative discretion was supreme and limited only by a requirement that it be
―reasonable.‖504 As the constitution prohibits any taxation without legislative authority,505 the limit was largely theoretical in some cases because the
state supreme court‘s only option for an under-inclusive tax was (and remains) to strike down the entire tax.506 It could strike an express exemption (leaving the general taxing provision in place), but not a tacit one.507
Consequently the old cases tend to treat the selective power as practically
absolute.508
In the modern era the real property tax remains inclusive, subject only
to express exemptions.509 Other levies occur under specific statutes defining the property to be taxed. Some of these treat personal property as realty for taxation purposes, which is permissible.510 The modern cases still
refer to the ―selection of the subjects of taxation,‖ but in the context of
503. 156 N.H. 624, 629, 940 A.2d 237, 24243 (2007).
504. See generally Opinion of the Court, 4 N.H. 565 (1829).
505. N.H. CONST. pt. I, art. 28 (1784).
506. See generally Eyers Woolen Co. v. Town of Gilsum, 84 N.H. 1, 28–29, 146 A. 511, 525 (1929).
507. Id.
508. See, e.g., Brewster v. Hough, 10 N.H. 138 (1839).
509. N.H. REV. STAT. ANN. § 72:6 (2008).
510. ―[T]he Legislature, by proper classification, has the power to make any kind of property personalty for the purposes of taxation, though it is real estate by the common law and for all other purposes,
and vice versa.‖ Kolodny v. Laconia, 96 N.H. 337, 338, 72 A.2d 507, 508 (1950); accord In re Town
of Pelham, 143 N.H. 536, 538, 736 A.2d 1223, 1225 (1999).
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classification under part II, article 6 as amended in 1903.511 The requirements in principle are the same—taxation only of property and reason in
selection. The legislature has ―broad power to declare property to be taxable or non-taxable based upon a classification of the property‘s kind or use,
but not based upon a classification of the property‘s owner.‖512
The oft-repeated prohibition on classification of ―owners,‖513 ―taxpayers,‖514 or ―persons‖515 is a loose and misleading way of describing what
remains of the prohibition on excise taxes. To tax (or exempt) ownership,
sale, severance, receipt, expenditure, etc., of a particular class of property
necessarily classifies the taxpayers who do those things. The tobacco tax
classified sellers or purchasers of tobacco. Denial to private landfill operators of an exemption for pollution control facilities classified the operators.
Both were perfectly constitutional.516 Yet a tax on apples put into commerce was an unconstitutional occupation tax,517 as was one on milk distribution.518 There is more to this than minimum-rationality equal protection—all of the distinctions are in some sense rational.
Taxation that meets the requirements of public purpose, equality, and
reason can still fail. New Hampshire‘s classification power in taxation is
narrower than it is in ordinary economic regulation, because the legislature
may only tax ―polls, estates, and other classes of property.‖519 Pure excise
taxes remain ultra vires. Since 1903, some of the appearance and effect of
the forbidden excise can be achieved by classification of ―property in motion,‖ but not all. The state may not directly tax the exercise of an occupation, nor some act. Charges on those things must be justified under some
other power, such as cost recovery fees or police power penalties.520 However, the state may identify a class of property defined in part by some
event and require a person associated with that property and event to pay
the tax.
511. N. Country Envtl. Servs. v. State, 157 N.H. 15, 19, 943 A.2d 786, 790 (2008); Smith v. N.H.
Dep‘t of Revenue Admin., 141 N.H. 681, 687, 692 A.2d 486, 491 (1997).
512. N. Country Envtl., 157 N.H. at 19, 943 A.2d at 790 (quoting Smith, 141 N.H. at 686, 692 A.2d at
491).
513. Id.; see also Opinion of the Justices, 123 N.H. 344, 348, 461 A.2d 129, 131 (1983) (quoting
Opinion of the Justices, 84 N.H. 559, 569, 149 A. 321, 326 (1930)).
514. Opinion of the Justices, 106 N.H. 202, 206, 208 A.2d 458, 46162 (1965) (quoting Opinion of
the Justices 84 N.H. 559, 569, 149 A. 321, 326 (1930)).
515. New York Life Ins. Co. v. Sullivan, 89 N.H. 21, 28, 192 A. 297, 301 (1937).
516. See N. Country Envtl., 157 N.H. at 26, 943 A.2d at 795 (privately operated landfills); Havens v.
Att‘y Gen., 91 N.H. 115, 116,14 A.2d 636, 637 (1940) (tobacco).
517. Opinion of the Justices, 95 N.H. 555, 556, 65 A.2d 876, 877 (1949).
518. Opinion of the Justices, 98 N.H. 527, 529, 96, A.2d 733, 734–35 (1953).
519. N.H. CONST. pt II, art. 6 (1784).
520. The principal non-tax revenue powers will be the subject of a forthcoming article. They are
subject to their own constitutional limits on structure, amount, purpose, etc. See, e.g., D‘Antoni v.
Comm‘r, N.H. Dep‘t of Health and Human Servs. 153 N.H. 655, 917 A.2d 177 (2006).
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There are two ways taxes may fail as classifications of property no
matter how rational they are in the equal protection sense. The most obvious is to make taxability or tax rate depend on a characteristic of the taxpayer unrelated to the definition of the class of property. Thus, taxing the
income of only corporations is forbidden.521 Graduation is forbidden—it
amounts to classification on the basis of wealth rather than qualities of the
taxed property. ―A tax levy cannot be sustained here upon any theory that
the richer one is the higher his tax rate should be. All taxes on like property and for like purposes must be equal.‖522 Taxation of business profits
that would vary with the labor intensity of taxpayers‘ business or the taxpayer‘s size or legal structure would unconstitutionally ―result in two
classes of taxpayers, paying differing rates of tax on essentially the same
class of property.‖523 This has nothing to do with the number of taxpayers
linked to the property. Taxing unusual forms of property that may be uniquely valuable to only one or a few persons in a particular business is not
necessarily an improper classification.524 Nor is taxing a type of property
distinctively used by only two entities in the state.525 The state supreme
court is ―not concerned with the number of properties within a particular
group, but with whether the distinction drawn between the taxable and
nontaxable properties is a proper one, in that it is sufficiently inclusive to
create distinctive classes.‖526
The other form of forbidden excise involves under-inclusive classification—a tax on property used in or generated by a particular industry or
group that is not sufficiently and meaningfully distinguishable from similar
property of other industries or groups. This is why the apple and milk taxes were forbidden ―occupation‖ taxes. While making the distinction is
essential to preserving a fundamental constitutional limit, at least with regard to commodity taxes, it is not easy. Commercially produced apples
were too narrow a class,527 but severed timber was not.528 Receipts on sale
of bottled soft drinks were once approved as a class,529 but the income of
milk distributors apparently was not.530 Tobacco sold for human consump521. Opinion of the Justices, 111 N.H. 206, 209, 278 A.2d 348, 350 (1971).
522. Opinion of the Justices, 99 N.H. 525, 527, 113 A.2d 547, 548 (1955) (internal quotation marks
and citations omitted) (quoting Opinion of the Justices, 84 N.H. 559, 571, 149 A. 321, 328 (1930)).
523. Opinion of the Justices, 123 N.H. 296, 302, 460 A.2d 93, 97 (1983).
524. See Tenn. Gas Pipeline Co. v. Town of Hudson, 145 N.H. 598, 604, 766 A.2d 672, 677 (2000)
(pipeline easement).
525. See N. Country Envtl. Servs. v. State, 157 N.H. 15, 28, 943 A.2d 786, 797 (2008) (privately
operated landfills).
526. Id. at 20, 943 A.2d at 791.
527. Opinion of the Justices, 95 N.H. 555, 556, 65 A.2d 876, 877 (1949).
528. Opinion of the Justices, 84 N.H. 559, 575, 149 A. 321, 329 (1930).
529. Opinion of the Justices, 94 N.H. 506, 509, 52 A.2d 294, 296 (1947).
530. Opinion of the Justices, 98 N.H. 527, 529, 96 A.2d 733, 734–35 (1953).
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tion and refined petroleum products are in classes by themselves.531 The
state supreme court has repeatedly warned of the ―danger of creating, by
narrow classification, a tax upon occupations or privileges,‖532 and proposals for narrow sales or service taxes seem to have waned. However, if they
recur, the state supreme court may have to again take up the sketchy law
on the ―legal requirements of classification.‖533 The language of the decisions along this difficult boundary has ranged from broadly deferential to
legislative discretion to harshly peremptory.
Most classifications are justified at the equal protection level as rational distinctions with a public purpose. However, the limitation of taxing
authority to classes of property is an additional restriction. Classification
turning on personal characteristics unrelated to the property taxed is only
permissible through police power exemptions, as described below. Narrow
classification by specific products, services, or industries is inherently suspect, and the state supreme court has in fact required something more than
minimum rationality to avoid it being treated as an impermissible occupation tax.
D. Exemptions
While some exemptions are a form of classification, some are not. It is
better to keep the terms distinct. As described in the cases, exemptions can
be tacit or expressed. Expressed exemptions may be justified as matters of
administrative practicality, as a way of defining a class of taxable property,
as a way of avoiding double taxation (which is a special case of the classification power), and as exercises of the police/protective power. All of
these must meet the requirements of public purpose, equality, and reason,
but only the last may legitimately discriminate on the basis of personal
characteristics unrelated to the definition of the property taxed or exempted.
Tacit exemptions are those implicit in the legislature‘s choice not to
levy a tax. Given the nineteenth-century practice of levying the tax on
estates both inclusively (real property) and exclusively (personal property)
it is understandable that from the earliest times the state supreme court has
sometimes referred to this as a form of exemption, but it led to an unresolved tension in the cases because at least some express exemptions were
treated very differently.
531. Opinion of the Justices, 114 N.H. 174, 178, 317 A.2d 568, 570 (1974) (petroleum).
532. Opinion of the Justices, 111 N.H. 131, 135, 276 A.2d 817, 820 (1971) (quoting Opinion of the
Justices, 97 N.H. 546, 548, 81 A.2d 853, 855 (1951)).
533. Havens v. Att‘y Gen., 91 N.H. 115, 117, 14 A.2d 636, 638 (1940).
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Tacit ―exemption‖ by silently excluding property from a taxable class
is an exercise of the power to select and classify. The line of cases saying
selection of some property for taxation is not an exemption of other property is the better guide.534 Referring to silence in the tax statutes as an exemption was harmless before 1903, but now it adds confusion to the analysis of exemptions. Tacit exemption is simply a matter of selection and
classification. The appropriate analysis has only two levels—the selection
of the objects of taxation must meet the requirements of public purpose,
equal treatment, and reason, and it must define a distinct class of property
without resort to unrelated personal characteristics of the taxpayer. Defining a class of property with a stated exclusion, for example all income over
$2,000, is not a tacit exemption.535
Small express exemptions are sometimes permitted as matters of administration and practicality.536 Most other exemptions are now treated as
exercises of the classification power, whether in the usual form of exemptions, or as ―deductions, adjustments and credits.‖537 Defining classes of
property by carving out or adding back sub-classes is a natural and efficient method. However, add-backs or exceptions from exemptions can
misdirect attention. This was recently illustrated in North Country Environmental Services v. State.538 The taxpayer operated a landfill—it had
previously taken advantage of an exemption for pollution control facilities
from the real property tax.539 In 2006 the legislature amended the relevant
exemption statute prospectively to except privately owned landfills.540 The
taxpayer, one of only two in the state then affected by the statute, argued
discrimination and disproportion, but the state supreme court held that pollution-control facilities associated with landfills were a distinct class of
property based on use, and that denial of exemption was rationally related
to a declared legislative purpose to discourage that method of waste disposal.541 As reasonable as this approach was, it seems more a response to
534. ―The non-assessment of other classes of property would not be an exemption of any class of
people.‖ Morrison v. Manchester, 58 N.H. 538, 556 (1879).
535. Opinion of the Justices, 82 N.H. 561, 570, 138 A. 284, 290 (1927).
536. See Opinion of the Justices, 88 N.H. 500, 510, 190 A. 801, 808 (1937) (implying that a nominal
amount of an estate could be exempted, presumably because it would not be worth the costs of collection). A ―discount‖ on tax stamps allowed to wholesale tobacco distributors was justified to reduce
evasion and increase efficiency of supervision. Havens, 91 N.H. at 119–20, 14 A.2d at 639. An exemption to compensate retailers for collecting sales tax was permissible although not required. Opinion
of the Justices, 97 N.H. 533, 539, 81 A.2d 845, 851 (1951).
537. Opinion of the Justices, 132 N.H. 777, 783, 584 A.2d 1342, 1346 (1990) (quoting Opinion of the
Justices, 131 N.H. 640, 642, 557 A.2d 273, 275 (1989)).
538. 157 N.H. 15, 943 A.2d 786 (2008).
539. In re Town of Bethlehem, 154 N.H. 314, 324–25, 911 A.2d 1, 9–10 (2006).
540. N. Country Envtl., 157 N.H. at 17, 943 A.2d at 789.
541. Id. at 24–25, 943 A.2d at 794.
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the taxpayer‘s sense of grievance than a necessary holding. The exception
simply restored the taxability of the property at the same rate as all other
realty. The real question was whether the remaining exemption for other
sorts of pollution control facilities was constitutional. If there were a proper purpose in encouraging them as a distinct class, a reason to discourage
other activities was superfluous.
Perhaps most exemptions other than those to avoid double taxation are
grounded in the protective/police power. Their effect is to encourage certain activity or aid particular persons. It may not matter if those exemptions designed to encourage certain uses of property are treated as classifications, but there are some express exemptions that should not be. Exemptions based on personal characteristics unrelated to the taxed property—
age, wealth, disability, family relationship, form of business organization—are not exercises of the power to select objects of taxation. It is axiomatic that the power to classify and select objects of taxation is confined
to property: ―the legislature may not classify owners for differing taxation.‖542 Taxing or not on the basis of personal characteristics or activities
unrelated to the taxed property is at the heart of the forbidden excise power. Taxing the wealthy as such may be progressive, but it is unconstitutional in New Hampshire. The state supreme court long ago observed that
a quantitative exemption to an income tax could be forbidden graduation,
and a tax ―cannot be sustained here upon any theory that the richer one is
the higher his tax rate should be.‖543
Personal exemptions have historically required an explicit protective
power justification, such as relief of actual poverty, and the state supreme
court has usually made an independent judgment about the effect of the
exemption.544 Yet the modern state supreme court has sometimes applied
the minimal scrutiny that originated in generic classification cases to personal exemptions.545 The difference is shown in the treatment of age-based
exemptions to the IDT in 1963. The state supreme court made do with a
vague reference to ―some common attributes‖ of age and poverty and then
simply listed a series of statutes that drew lines for various purposes at age
542. Id. at 23, 943 A.2d at 793.
543. Opinion of the Justices, 84 N.H. 559, 571, 149 A. 321, 328 (1930). Quantitative exemptions
always introduce graduation in effective rates. For example, under a 5% income tax with a $1,000
exemption, a person earning $1,100 pays $5, an effective rate of 0.45%, while one earning $2,000 pays
$50, an effective rate of 2.5%.
544. See id.
545. Most recently in sustaining inheritance tax exemptions based on family relationship. Estate of
Robitaille v. N.H. Dep‘t of Revenue Admin., 149 N.H. 595, 599, 827 A.2d 981, 985 (2003).
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65 or 70.546 Age-related distinctions were rational in taxation because they
existed for other purposes. Whether from laxity or naïveté, that decision
has left us with working families having substantial savings subsidizing (to
a modest degree) some much wealthier elders.547 The state supreme court
of 1930 would have insisted on a means test or some alternate justification
under the protective power. Opinions on age-based exemptions since 1963
have involved proposals with a means test, so it is unclear whether the state
supreme court would return to its traditional position on quantitative exemptions.
As with the ―occupation tax‖ problem in classification, the tests for
protective power exemptions, particularly those based on personal characteristics, are unclear. General language lumping all forms of classification
and exemption together is common, sometimes with language suggesting
minimum scrutiny. In other cases there is different language and what
appears to be a higher threshold. It is possible the state supreme court is
once again prepared to require more than minimum rationality for all express exemptions. There is a discernible difference in the tone in some of
the most recent cases. While the ―rational basis test‖ has been invoked as
recently as 2003,548 there is another line of cases coming down to 2008
speaking of ―just reasons‖ that ―reasonably promote some proper object of
public welfare or interest.‖549
E. Justice
The word ―just‖ does not appear in any of the constitutional provisions
bearing on taxation. The term entered the case law in 1829 when the court
said that ―reasonable‖ in part II, article 5 ―seems to be used as having the
same meaning with the word just.‖550 This was in the context of explaining
and justifying legislative discretion to deviate from strict mathematical
proportionality—what became the selective power and the power to provide for exemptions.551
A tax of a particular sum, upon every poll in the state, might be easily
laid, and would be, in one sense of the term, a proportional tax. But no
546. Opinion of the Justices, 105 N.H. 22, 24, 192 A.2d 22, 23 (1963). The same rationale was
quoted verbatim to support property tax exemptions in Opinion of the Justices, 110 N.H. 206, 208, 266
A.2d 111, 113 (1970), but that exemption was means-tested.
547. The current extra exemption at age 65 is $1,200. N.H. REV. STAT. ANN. § 77:5 (2009). Agerelated exemptions for residential property have justifications other than poverty.
548. Robitaille, 149 N.H. at 596, 827 A.2d at 983. The actual scrutiny in this case seems to have
been a bit more robust.
549. In re Town of Rindge, 158 N.H. 21, 26 (2008) (quoting Opinion of the Justices, 144 N.H. 374,
378, 746 A.2d 981, 985 (1999)).
550. Opinion of the Court, 4 N.H. 565, 569 (1829).
551. Id. at 570.
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person would suppose that such a tax would be just and reasonable. ―No
one would think, that the polls of children, in their earliest infancy, or of
idiots and distracted persons, were proper subjects of taxation.‖552
The classification and exemption powers are now fully developed. Yet
the state supreme court has repeatedly included the term ―just‖ in lists of
requirements as if it were an independent limitation: ―taxation [must] be
just, uniform, equal, and proportional.‖553 There are variations of this—
some free-floating and some attributed to part II, article 5.554
An exercise of the taxing power that meets all the other constitutional
requirements is necessarily ―just‖ as far as judicial review is concerned.
Such a protean term, now unnecessary in its original context, can only confuse litigants and the public. The state supreme court is frequently at pains
to explain it has nothing to do with the wisdom of otherwise valid legislation, but this repeated inclusion of an extra-constitutional word in lists of
constitutional requirements needlessly invites a contrary inference.
F. Standards of Review
Sometimes standards of review are not articulated in the modern taxation cases. When they are, they are not in entirely consistent language, in
part because the same issue can be and often is characterized in a variety of
ways. Even when the language and issues are parallel, it is difficult to reconcile the outcomes in all the cases. This situation was not improved
when the three-tier federal approach to equal protection began to be applied in some tax cases555 during a period when the chief justice expressed
concern over ―the confusion in our standards of constitutional review.‖556
While I believe some of the limitations on the taxing power should be and
have been maintained with special scrutiny, an analysis and critique of
standards of review in constitutional challenges to New Hampshire tax
legislation will require a separate article.
552. Id.
553. Smith v. N.H. Dep‘t of Revenue Admin., 141 N.H. 681, 686, 692 A.2d 486, 491 (1997).
554. ―[E]qual in valuation and uniform in rate, and just.‖ In re Town of Rindge, 158 N.H. at 24, 959
A.2d at 192 (quoting Opinion of the Justices, 144 N.H. at 378, 746 A.2d at 985); Starr v. Governor, 148
N.H. 72, 74, 802 A.2d 1227, 1230 (2002); Opinion of the Justices, 131 N.H. 640, 642, 557 A.2d 273,
275 (1989).
555. See Cagan‘s, Inc. v. N.H. Dep‘t of Revenue Admin., 126 N.H. 239 (1985).
556. Gonya v. Comm‘r, N.H. Ins. Dep‘t, 153 N.H. 521, 538, 899 A.2d 278, 292 (2006) (Broderick,
C.J., concurring); see also Dover v. Imperial Cas. & Indem. Co., 133 N.H. 109, 121, 575 A.2d 1280,
1287 (1990) (Souter, J., dissenting).
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G. Modern Rules Summarized
The modern law can be summarized in fairly simple and precise terms
without the cascade of overlapping, multifarious, and redundant terms that
have accumulated over two centuries. Each of the following propositions
is supported by decisions in the modern era, and none has been repudiated.
While the legislature has great discretion in selecting the objects and
methods of taxation, all tax legislation must meet the requirements of public purpose, equality, and reason. The term proportional in part II, article 5
means that every tax must be ad valorem, which requires a uniform rate
applied to a uniform valuation for everyone paying the tax. Classification
for taxation has two aspects—it must be applied to property, and it must be
rational. So long as it is applied to property, classification under part II,
article 6 need only meet the public purpose, equality, and reason standard.
However, classification based on personal characteristics of the taxpayers
unrelated to the defining characteristics of the property is not authorized.
A narrow classification of property that fails to include similar property
defined by the same characteristic event is possible but may fail as either
insufficiently distinct or as an excise. Exemptions may be used to define
classes of property, or to determine which of two overlapping classes will
apply when double taxation threatens. These need only meet the public
purpose, equality, and reason standards. Exemptions may also be exercises
of the protective power to encourage particular acts or aid particular persons, and such exemptions are only permitted to promote some definite and
proper object of public welfare or interests. Taxability of property defined
by an act or event is determined by the law at the time of the act or event.
IV. CONCLUSION
In the 1880s the New Hampshire Supreme Court developed a logical,
elegant, and comprehensive interpretation of the constitutional limits on
the taxing power. One could imagine it being workable in a modern world,
but the people soon found it too confining. However, rather than granting
taxing powers more like those of other states, they authorized in 1903 two
specific new property taxes and the taxation of ―other classes of property.‖
A large part of the old learning was thereby rendered meaningless, as the
state supreme court gradually discovered. Exercise of the power to define
and tax other classes of property necessarily implied taxation of property
based on some event, permitting something like an excise. It also necessarily involved the power to have more than one tax applied to some property and to have different tax rates for different classes of property. Still
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lacking the excise power, however, the legislature must structure each new
tax as an ad valorem property tax.
The 1903 amendment embedded a fundamental tension in the constitution. The nineteenth-century synthesis partially survives in the remaining
broad language of proportionality and equality, the prohibition of excises,
and the restriction of taxes to property and polls. But the new power to
create multiple classes of property taxable in different ways at disparate
rates opens the door to unequal, perhaps invidious, tax burdens and to classifications indistinguishable from occupation or other excise taxes. The
fault line along which this tension is resolved in particular cases is the limit
of the legislature‘s power to define classes of taxable property. These are
also the cases with the widest variation in language and outcomes. Had the
state supreme court adhered to its occasional position that there were only
a few major classes of taxes, New Hampshire might have been obliged to
adopt a general sales or income tax. Yet that view was neither grounded in
the constitutional language nor consistent with the state supreme court‘s
previous declarations about the legislature‘s power to select and classify
the objects of taxation.
One could criticize the outcome or language of a given decision or
urge a stricter standard of review, but each critical step in the development
of the modern law has been logical, faithful to the language of the constitution, and supportable by reference to earlier decisions. A regime where
everyone who was taxed was taxed the same way and at the same rate has,
by the probably unforeseen implications of a vague phrase, been utterly
transformed.